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Pakistan:Cement sector reluctant to reduce prices despite power rate cut
SBP criticised cement companies in its annual report for not passing on the reduced cost benefit to consumers

KARACHI: Cement manufacturers did not pass on reduced cost benefit to the consumers that came from declining fuel and coal prices. The sector seemed reluctant to share the expected gain from Rs 2.32 per unit cut in power tariffs, Daily Times learnt.

According to MM Securities’ analyst Farhana Shahid, report of Rs 5 to 23 per bag cut in cement prices were not true as cement manufacturers have not reduced the cement prices. There has been a change in region wise MRP (maximum retail price) and corresponding sales tax. Under the third schedule, sales tax was applicable on maximum retail price prevailing in the country not according to the zone wise (North/South). However, now the sales tax will be calculated on region wise basis ie on different MRP for both North and South zone, she added.

This will be positive for those operating in both the regions; however the magnitude of this positivity is still minimal. This change is applicable from December 16. There is still a possibility of reduction in cement prices by Rs 5-15 per bag by cement manufacturers in near term to pass on the impact of massive reduction in coal prices, oil prices, transportation cost and electricity tariffs to consumers, she said.

JS Research’s analyst Umair Vayani said due to reduction in electricity tariff by Rs 2.32 per kilowatts per hour Pakistan cement sector would be a major beneficiary because electricity charges accounts for 18 percent-28 percent of the total manufacturing costs for the cement companies. “We estimate 3.5 percent-12 percent earnings accretion for cement companies if the tariff benefits are not passed on to the consumers,” said Vayani.

All Pakistan Cement Manufacturers Association (APCMA) former chairman Aizaz Mansoor Sheikh said it was too early to forecast any downward revision in prices, as the notification of electricity tariff reduction has not been issued yet. He was of the view that the cement prices should remain stable in current dynamics as the economic circumstances aren’t much clear due to variation in commodities’ prices.

Mansoor said his company would not likely reduce the prices as when electricity price went up few months ago they did not pass on the impact to the end user, so now prices would remain same. However no company is bound to follow market trend while it depends on contemporaries’ response over the tariff cut – then it would be decided further. He said the transporters did not reduce freight charges despite steep decline in fuel prices; so manufacturers have to see all these factors.

The State Bank of Pakistan (SBP) also criticised cement companies in its annual report over not passing on the reduced cost benefit to the consumers. Cement sector has switched to energy efficient technologies that reduced their distribution cost by 11.3 percent during July-March 2014, SBP revealed. Both large and small firms have reduced their dependence on banks and thereby reduced their financing cost by 29.2 and 50.1 percent, respectively, during July-March 2014.
UAECEMENT.COM - Dec,20,2014



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