PSDP cut causes reduction in cement prices

Producers reduce prices by around Rs150 per bag

KARACHI: A reduction in the Public Sector Development Programme (PSDP) has forced cement producers in the northern region to reduce prices by around Rs150 per bag.

The price of a 50kg cement bag ranges from Rs460 to Rs500 in the north while in south, it costs Rs600. “Indeed, prices have declined because volumes have shrunk due to the cut in PSDP,” said a high-ranking official of a major cement company.

“Industry players are holding meetings to discuss and decide the prices but they have failed to agree due to which prices are fluctuating,” said Topline Securities’ analyst Nabeel Khursheed.

Earlier, cement prices in the north crossed Rs600 per bag and then began falling when the newly elected government of Pakistan Tehreek-e-Insaf introduced austerity measures and slashed the development budget, he added.

Particularly after April 2019, the decline in prices in the northern region got steeper due to which the gap between prices of cement bags in the south and north widened, he said. “Initially, the industry survived a decline of Rs25,” the analyst pointed out.

Pakistan’s cement industry is divided into two geographical parts. The northern region comprises Punjab, Khyber-Pakhtunkhwa, Gilgit-Baltistan, Azad Kashmir and tribal areas while the southern region includes Sindh and Balochistan. “In the north, real prices should be at least Rs580,” said Khursheed. “The price of Rs460 is unsustainable as it is resulting in losses.”

Cement companies have also not been able to pass on the federal excise duty (FED) over the past two years.

Recently, local cement companies expanded their production capacity aggressively in a bid to lift their production from 49.4 million tons in mid-2018 to 72.8 million tons over the next five years, according to the SBP’s third quarterly report for fiscal year 2018.

Published in The Express Tribune, May 31^st, 2019.

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