Recently, traders in Pakistan have reported that cement manufacturers have increased prices in a bid to benefit from a recent reduction in taxes, which they were supposed to pass on to consumers in July.
Cement manufacturers allegedly raised the factory prices by about Rs.17/50 kg bag to Rs.265/bag in July, which kept retail prices unchanged at Rs.380 – 390. The factory price excludes taxes and profit margins of wholesalers and retailers.
According to traders, customers had been anticipating a notable decline of up to Rs.25/bag in July, as taxes were lowered.
In June, Finance Minister Abdul Hafeez Shaikh, whilst delivering the budget speech, announced a reduction of Rs.10/bag on account of federal excise duty, 1% cut in general sales tax and a withdrawal of 2.5% special excise duty on cement.
Atif Zafar, an analyst at JS Research had calculated that the reduction in taxes would lower the commodity price by Rs.23 per bag. This is not the reality reported by cement traders. Walibhai Patel, a cement dealer, has told the media that almost all manufacturers have raised prices by Rs.10/bag in July against expectations of a considerable decline.
Immediately after the announcement of the tax relief, manufacturers did reduce their prices by up to Rs.10/bag. But the latest increase has brought the cement prices back to pre-budget levels of Rs.380 – 390 in retail.
“It was a zero sum game for consumers, who had put their projects on delay expecting fall in prices in July,” Patel added.
An analyst at InvestCap noted that the increase in factory price is of temporary nature and that they will have to pass on the benefit of reduction in taxes to consumers at last to avoid watchdogs. “The Economic Coordination Committee (ECC) of the Cabinet may take notice of no decrease in cement price.”
It has been reported that cement manufacturers are now selling the 50 kg bag at Rs.265 in July, which they had been selling at Rs.245.25 in June. Zafar notes: “This shows an increase of 7% or Rs.16.75/bag, but sales are likely to remain sluggish during the month due to start of the monsoon season.”
A slight increase of 6% in sales is expected in the fiscal year 2011/12. “We expect domestic demand to recover by 6% in FY12 on the back of higher PSDP spending, reconstruction activities in the flood-hit areas, and more suitable weather conditions this year,” Zafar concluded.