The cement manufacturers are likely to increase cement prices by around Rs 36 per 50-kilogram bag following the hike of international coal prices.
A source from the manufacturing industry while talking to Pakistan Today said that the escalating price would be increased gradually.
However, the cement manufactures prudently asserted Rs 15 per bag would be passed-on with the first round of rise i.e. to be started from November this year.
The prices may keep on increasing on short term bases as international coal markets continue to find an equilibrium price, source added.
The cement industry is using coal as the fuel for its kiln and the federal government through the Finance Act 2014 imposed one per cent import duty on coal, which had been zero rated previously.
International coal prices increased 1.5 USD/MT or 1.68 to 90.95 on Monday from 89.45 of the previous trading session. Coal changed its position upwards to 7.76 per cent during the last week, 27.83 per cent during the last month and 71.44 per cent during the last year. Historically, coal reached all-time high of 139.05 in January of 2011 and a record low of 48.80 in January 2016
The manufacturing industry sources believes that the forecast upswing may be large this time and would take coal prices further up despite continuing reduction in China’s coal consumption; the near-term shortage amidst approaching winters could impact coal markets.
The government has also raised duty on import of coal from five to 11 per cent for the fiscal year 2016-17. This has created an impact of Rs 7 per bag to the cement industry.
Moreover, the industry sources said that the overall budget’s impact on cement was Rs 32 per 50-KG bag, which helped cement prices to reach Rs 540 to Rs 550 per bag from the previous rate of Rs 508 to Rs 518 per bag.
The fiscal year 2015-16 turned out as great for the cement sector where the industry posted a growth of 20 per cent of growth in profitability to clock in at Rs 35.6 billion compared to Rs 29.7 billion reported in the fiscal year 2014.
The sector got a benefit on all fronts, expect for exports registering. There was notable growth in both domestic sales and gross margins.
However, limited growth in earnings was marked to 62 per cent in tax expenses as effective tax rate increased to 28 per cent as deferred tax losses of the industry started to fade away coupled with the imposition of a super tax.
According to the experts increased composition of local dispatches in the total sales mix and reduced financial cost has significantly diluted the impact of variation in coal prices to 1.7 -3.2 per cent on the profitability of cement manufacturers
“Coal was one of the few fuels to have import duty which is a sheer injustice to the cement industry that is the predominant consumer of imported coal in Pakistan and consumes almost 95 per cent of the 4.5 million tonnes imported annually,”All-Pakistan Cement Manufacturers Association (APCMA) spokesman said.
“Recent changes in the structure of FED on cement resulted in over 100 per cent increase in FED on local sales of cement, for which cement makers previously were paying Rs 24 to 28 per bag or 5 per cent per bag as the retail price of cement,” spokesperson added.
However, cement manufacturers required to pay about Rs 50 per 50-kg bag FED instead of approximately Rs 25 per bag. While Rs 1,000 FED is being charged on cement per tonne.