Win-win: Move will benefit industry and government, says analysts
Government proposes to replace FED collection system.
The government has proposed to replace the FED collection from specific basis of Rs400 per ton to 5% on the retail price of cement. PHOTO: FILE
KARACHI:
The government’s budget move to replace the collection system of federal excise duty (FED) from the cement industry is beneficial for both the government and the industry, analysts said.
Since the new duty is imposed on retail price, any future increase in cement prices will increase government revenue. However, this change will not hurt the margins of the industry, as it can easily pass this on to the consumer due to its power to increase prices unilaterally.
The government has proposed to replace the FED collection from specific basis of Rs400 per ton to 5% on the retail price of cement.
“This is a smart move from the government. This will be a win-win situation for both the government and industry as this entire burden will be passed on to the consumers,” Standard Capital Securities analyst Saad Hashmi said.
The expected rise in demand and better capacity utilisation, the cement industry is in a better position to increase prices by big margins, he said.
AKD Securities analyst Asad Siddiqui commented that the change in the collection system will hardly increase the cement prices. The prices will rise by Rs5 per 50kg bag, which is small for the industry as it can easily pass it on to the consumers.
For the budget, the government has proposed to allocate Rs525 billion for the public sector development program (PSDP), which will be 24% higher compared to the previous budget.
The PSDP and the growth in the construction industry is directly related to the rise in cement demand.
In the current year, construction sector has posted an impressive growth of 11.3% compared to the dismal growth of negative 1.7% in previous fiscal year, according to the Economic Survey of Pakistan 2014.
In the first 10 months of the current fiscal year, the cement industry sold 21.3 million tons of cement in domestic markets, up 2.7% compared to the corresponding period of last year. Overall sales in 10 months grew 1.17%, as total dispatches rose to 27.9 million tons against 27.7 million tons of the same period of the previous year.
The capacity utilisation of the industry remained 75.21% during the first 10 months of current fiscal year (Jul-Apr) – highest in the last five years. Industry officials believe that the rising levels of construction activities will further increase the capacity utilisation to 80% by the end of June 2014.
Cement industry touched its highest-ever production in fiscal year 2010 when it sold 34.2 million tons (local sales and exports) of cement. Cement sales then declined 31.4 million tons in fiscal year 2011, but from then on, the industry sales increased gradually to 32.5 million tons in 2012 and 33.4 million tons in 2013.
Published in The Express Tribune, June 6th, 2014.
The government’s budget move to replace the collection system of federal excise duty (FED) from the cement industry is beneficial for both the government and the industry, analysts said.
Since the new duty is imposed on retail price, any future increase in cement prices will increase government revenue. However, this change will not hurt the margins of the industry, as it can easily pass this on to the consumer due to its power to increase prices unilaterally.
The government has proposed to replace the FED collection from specific basis of Rs400 per ton to 5% on the retail price of cement.
“This is a smart move from the government. This will be a win-win situation for both the government and industry as this entire burden will be passed on to the consumers,” Standard Capital Securities analyst Saad Hashmi said.
The expected rise in demand and better capacity utilisation, the cement industry is in a better position to increase prices by big margins, he said.
AKD Securities analyst Asad Siddiqui commented that the change in the collection system will hardly increase the cement prices. The prices will rise by Rs5 per 50kg bag, which is small for the industry as it can easily pass it on to the consumers.
For the budget, the government has proposed to allocate Rs525 billion for the public sector development program (PSDP), which will be 24% higher compared to the previous budget.
The PSDP and the growth in the construction industry is directly related to the rise in cement demand.
In the current year, construction sector has posted an impressive growth of 11.3% compared to the dismal growth of negative 1.7% in previous fiscal year, according to the Economic Survey of Pakistan 2014.
In the first 10 months of the current fiscal year, the cement industry sold 21.3 million tons of cement in domestic markets, up 2.7% compared to the corresponding period of last year. Overall sales in 10 months grew 1.17%, as total dispatches rose to 27.9 million tons against 27.7 million tons of the same period of the previous year.
The capacity utilisation of the industry remained 75.21% during the first 10 months of current fiscal year (Jul-Apr) – highest in the last five years. Industry officials believe that the rising levels of construction activities will further increase the capacity utilisation to 80% by the end of June 2014.
Cement industry touched its highest-ever production in fiscal year 2010 when it sold 34.2 million tons (local sales and exports) of cement. Cement sales then declined 31.4 million tons in fiscal year 2011, but from then on, the industry sales increased gradually to 32.5 million tons in 2012 and 33.4 million tons in 2013.
The slow growth during the last three years did not affect the margins of the industry. On the contrary, this industry has been enjoying continuous increase in its profitability.
Published in The Express Tribune, June 6th, 2014.