KARACHI, July 31: Cement producers continue to be under pressure from various quarters to reduce prices. The current retail price at Rs220 per bag, up from Rs175 per bag in the period between September-April 2002-03 is seen to be more of a blessing of the revival of the cement cartel.
The Monopoly Control Authority is understood to be probing the issue of formation of cement cartel, while the finance minister — in order to save his dream of ‘housing boom’ from going soar — even threatened to allow the Trading Corporation of Pakistan to import cement, if local producers failed to voluntarily bring down the prices.
There is little argument on the fact that cement manufacturers have passed on to the consumers the benefit of 25 per cent cut in central excise duty (CED) announced in the budget. Industry sources say that per bag impact of 25 per cent reduction in CED works out to Rs14.30. But on average, cement still costs the consumer Rs220-225 per bag. Critics point out that for the consumer the benefit of lower CED has been wiped out by the re- birth of the cartel (on May 8), which has seen a meteoric rise in cement prices by Rs45 per bag.
But the industry is adamant that increase in price of cement and “allegation of cartel among manufactures is an attempt by vested interests to damage the economic development of the country”. While the public disdains cartels in any industry, sources in cement sector say that they are doing nothing different from what everyone else is doing.
Says A.R. Thaplawala, a senior executive at one of the luckier cement companies: “We all know that prices of even the consumer goods such as aerated water, packs of biscuits and branded ghee, etc., are the same for all brands.” And he adds: “Nobody has ever made any allegation of a cartel against the manufacturers of those products.”
Most of the members of 23-strong All Pakistan Cement Manufacturers Association contend that in the last few years, capacity utilization in the industry was ‘hardly 65 per cent’, though more plants and expansions had come on line. They say that compared to a historic seven-per cent growth in demand, the rate of growth in the last three years had slipped to just around two per cent.
Mr Thaplawala laments that the industry as a whole had suffered loss of Rs607 million during quarter ended March 31, 2003, “due to price war among the manufacturers”. He says that even now price varies between Rs200 to Rs205 per bag in different cities, depending upon quality, brand reputation and logistic cost.
“This price is less than the price prevailing in the preceding year,” says Mr Thaplawala, adding that one of the reasons for the decrease was passing on of reduced excise duty to the consumers. But analysts believe that the finance minister’s warning to manufactures that he would open up imports, was more of a hoax.
“It simply wouldn’t be economical,” says an analyst. Another cement sector analyst Abdul Rasheed at InvestCap observed that the government could opt for import in case the local manufacturers did not offer it the face saving price reduction.
However, the option for sources of import were limited due to high transportation cost. He noted that the prices of cement were competitive in the South Asian region and the government had to choose just between India and Iran.
Imports from India had dim prospects, for apart from the political sensitivities, importing Indian cement made a little economic sense. “Retail price of Indian cement in Pakistan may come up to more than local prices of Rs220-230 per bag, including freight, duties and other expenses,” said Mr Rasheed.
Iran was quiet a better option for it was known to be the most cost efficient cement manufacture in the world. “The ex-factory cement price in Iran is $20 per ton (Rs58 per bag),” says Mr Rasheed. But he adds that after accounting for the transportation cost, import duty, CED and sales tax, it would cost the importer around Rs4,000 per ton (Rs200 per bag). Add to that the importer’s margin for risk and the distributor and retailers’ slice of profit and the cement bag falling in the hands of the consumer is not likely to be any cheaper.