Cement prices increased ahead of FED implementation

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LAHORE: Cement makers have increased prices in the northern region by Rs15-20 per bag ahead of the Federal Excise Duty (FED) to be passed through the recent budget for the fiscal year 2018-19.

Industry sources told Pakistan Today that the current price range around Rs490-520/bag for the North region, where the latest 3 per cent increase in price will take cement prices back to the price levels seen in March this year. The South region, on the other hand, may not increase the prices for now, given the stability seen in prices in the past six months (current range Rs570-600 per bag.

Given the timing of price hikes that started in March 2018, they said that two months of decreased prices had been raised following the rise in coal prices amid seasonal demand for the third quarter which hovered around $93 per ton, and 4.5 per cent devaluation of the rupee in the third quarter of fiscal year 2018. They believe that any positive impact of the current scenario on sector margins is unlikely to be seen in the third quarter of the fiscal year 2018.

Industry sources further added that the impact of the previous price increases had partially offset the impact of higher coal prices. They said that the possibility of further price increases is likely in the North region which has been plagued by a price-war like situation for the past few months, to be adjusted on a weekly basis, while the southern region would follow suit.

Nevertheless, both regions are expected to pass on the full impact of a rise in FED by 20 per cent to Rs1.5 per kg in the recent budget as soon as it comes into effect.

Sources believe this development may drive a short-term positive market reaction after the underperformance by the cement sector by 13 per cent in past one month.

They, however, maintain their market weight stance on the sector, and expect the upcoming two to three months to be crucial for the cement sector to set the stage (in terms of pricing) following the upcoming supply additions in both North and South regions.

To this end, rising coal prices, currently trading at $102/ton and any further development may also be expected to put pressures on margins despite a reduction in customs duty on coal from 5 to 3 per cent in the fiscal year 2019.

They were of the view that two factors are expected to offset each other, and may lead to stable margins in the last quarter against the third quarter of fiscal year 2018. Nevertheless, they say margins in the southern region are expected to take a hit.