KARACHI, Jan 25: The price hike of Rs40-50 on 50 kg cement bag will escalate the construction cost besides pushing up the cost of public and private sector projects.

Builders think that the rising trend in cement prices will prove devastative for the construction industry which has recently started showing signs of improvement. Cement makers have raised the prices to Rs 75-290 per bag from Rs235-245 per bag last month.

The chairman, Association of Builders and Developers (ABAD), Babar Mirza Chughtai said that a person has to arrange extra Rs150,000-200,000 for purchase of cement after the increase in cement rate for construction of 200 yards single storey house.

Similarly, he said that a 500 square yards house single storey will need Rs300,000 extra money for arranging cement if the person is making a house on 3000 square feet covered area. All depends on the ratio of cement to be used in the construction projects like houses and bungalow besides the quality of construction.

Babar said that cement has a 30-40 per cent share in the construction of houses and bungalows. Suppose, if a person has estimated the construction worth of his proposed double storey house at Rs2.5 million then he will now have to manage extra money or say Rs300,000-500,000 for buying cement depending on the cement ratio and quality of construction.

He said that the cement makers are manipulating the market to their advantage keeping in view the rising demand on the back of booming construction sector. Besides, a number of people, who are engaged in renovating and upgrading their houses and bungalows, will also feel the pinch of the increase in cement prices.

The government, he said, has virtually failed to play its role in containing the cement prices and the Monopoly Control Authority (MCA) is yet to check the cartel of cement makers.

A 50-kg cement bag was priced at Rs160 in 2002, rising to Rs220 in June 2002. From December 2002 till now, cement prices had gone up by 60 per cent. He urged the government to take cognizance of the matter and force cement makers to cut prices by 60-70 per cent so that construction activities could be resumed in full swing.

However, the executive director of Lucky Cement, Abdul Razzak Thaplawala has claimed that "the cement makers have not raised the prices in spite of the fact that the federal government has increased the provincial excise duty on raw material like limestone, clay, etc., from Re1 to Rs5 per ton, up by 400 per cent."

The increase, he said, in the duty on these raw materials will cost about Rs8.45 million per annum to a cement maker with a capacity to produce 4,000 tons of cement per day.

This does not include the duty, which has also been increased on local coal and gypsum. Fuel oil prices have also increased by Rs300 per ton last week. Despite all these, cement makers have not made any increase in prices, he said.

He said it is likely that dealers might have increased the prices for a day or two due to temporary shortage of supply caused by non-availability of trucks because of Eidul Azha. It is normal phenomenon that the prices of all the products raise for about three to four days before Eid due to non-availability of transport.

The convenor, Karachi Cement Dealers Association (KCDA), Shaukat Hussain said that cement prices have not been increased in Karachi yet. However, the increase in cement prices was seen in Punjab only by Rs40 per bag. He said that the local market is likely to witness the price hike in Karachi too.

"A Rs5 per bag increase in retention price of cement translates into 10 per cent increase in profitability of a typical cement company," observed Mohammad Sohail, head of research, Invest Capital and Securities.

The prime body of cement producers: All Pakistan Cement Manufacturers' Association (APCMA) had disclosed that the demand for cement had maintained steady growth of 24.14 per cent during first half of the year ended December 31, 2004.

Owing to strong demand from private construction for housing and industrial projects and public sector demand for infrastructure projects capacity utilization for domestic market and export was recorded at 87.25 per cent and the full year capacity utilization was envisaged to be around 90 per cent.

And the APCMA had stated in its statement: "It would be fair to say that owing to a number of negative factors like the increase in coal prices, discontinuation of supply of natural gas during winter months to the cement sector, the increase in freight costs and the sharp increase in interest rates, it will not be possible for the industry to maintain the previous price-line in the retail markets, although efforts will be made to operate the plants at maximum capacity so the increased demand can be catered for and prices remain within the Rs 250 per bag level." The Association had also urged the government to reconsider the industry's long-standing request for abolition of excise duty, which in no way was justified.

Mohammad Sohail forecasts 16 million tons cement sales for full year, which he said would mark third consecutive year of higher cement off take. "The major increase in sales of cement traditionally takes place during the second half (Jan-June) of the year," he added.

An analyst at Khadim Ali Shah Bukhari Securities was of the view that the government would also address the cement price hike issue eventually. He said his arguments gets support from the government action against the auto makers who have been involved in similar tactics.