"Cement prices in the country are likely to increase anytime soon due to substantial increase in power tariff and diesel prices. The rupee devaluation has resulted in increased landed cost of imported coal as well as imported stores and spares used by cement manufacturers to run the plants," sources in the cement industry claimed. Sources said cement prices had remained stable for last four months except for the price increase due to tax measures announced in the recent budget.
However, the prices are likely to increase soon due to substantial increase in power tariff and diesel prices. The rupee devaluation has resulted in increased landed cost of imported coal as well as imported stores and spares used by cement manufacturers to run the plants. Cement factories in North including DG Khan cement, Maple Leaf cement and Fauji cement are selling their cement ranging between Rs 480/- per bag to Rs 490/- per bag of 50-kg whereas Attock Cement and Lucky Cement situated in South are selling their 50-kg cement bags at Rs 480/- to Rs 485/-.
In August this year, power tariff for industrial consumers has been increased to Rs 15.31 from Rs 10.51 per unit, ie, by almost 46pc. The Time-Of-Day rate has been increased by 35pc to Rs 18.81 from the current rate of Rs 13.99 per unit while off-peak rate of this category has jumped up by 62pc to Rs 13.31 from Rs 8.22 per unit, sources further added.
Whereas, the Pak Rupee has been depreciating since August 15 and it is presently around Rs 106.50 per US dollar. Due to axle load implementation, there has been an increase of around Rs 1,000-Rs 1,200 per ton in the cost for transportation of coal from Karachi to upcountry depending on the location and distance to destination.
"While the cement industry witnessed margins augmentation during the last fiscal year resulting in revival of industry dynamics, the last few months have seen severe rise in cost of doing business for the industry, which threaten the earnings' growth going forward," said Taha Khan Javed, Head of Research, Taurus Securities. "Different cost push increase have been witnessed since May ranging from axle load limitation, budgetary measures, gas & electricity tariff hike; which the industry has only partially passed on," he added, saying the biggest hit coming from the cost side is the hike in electricity tariff and the abnormal devaluation of PKR witnessed in the 1Q FY14, while interest rates are also on the uptrend.
"If the industry is to maintain its margins, it will have to eventually pass on this cost impact, otherwise its profitability will come under stress," he opined. It is pertinent to mention here that the industry recorded robust growth in September 2013 by dispatching 2.951 million tons of cement compared with 2.611 million tons dispatched in September last year showing growth of 13.01 per cent. However, the exports were down by 0.75 percent in July, 3.29 percent in August and 0.39 percent in September 2013.
The cement exports have been going down continuously during the last 15 months and the industry is now mainly depending on domestic market but any upward revision in price may affect the domestic sales of cement. It is also important to mention that during the federal budget 13~14, cement industry has been brought within the purview of 'third Schedule' which has increased the overall tax burden and has already resulted in increase in the local prices. Industry has approached the government to reconsider its decision, remove it from third Schedule and put in the normal sales tax regime. This will help industry to reduce prices which will help to accelerate construction activities across the country.
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