Builders wary as cement prices continue rise

Cement prices have gone up by nearly Rs50 on a bag since July last year after manufacturers passed on the impact of additional taxes and duties announced in the last two budgets.

The impact of budgetary measures taken in the fiscal year 2016-17 was Rs36 on a 50-kilogram bag, including federal excise duty of Rs30 and general sales tax of Rs6. Similarly, the impact of this year’s measures was Rs17.50 per bag, including Rs12.50 FED, Rs2.50 sales tax and Rs2.70 withholding tax.

A rise of Rs50 on a cement bag means you will be paying Rs40 more for a square foot when you have your house built, according to builders. A jump in steel-bar prices has already increased the construction cost by 5 per cent.

A 50kg bag of cement now sells for Rs535-545 in the country’s northern region and Rs565-610 in the southern region. However, there’s a friction among cement makers as a leading manufacturer and exporter hasn’t raised prices in both the regions.

In his budget speech for the 2017-18 fiscal year, Finance Minister Ishaq Dar announced a hike in FED from Re1 to Rs1.25 on a kilogram of cement with a hope that there would be no impact on commodity’s prices and makers would absorb the increase.

He said the cement sector was registering substantial growth and therefore must contribute to governmental revenues. Mohsin Sheikhani, chairman of the Association of Builders and Developers (ABAD), said builders usually charge Rs2,000 per square foot from consumers, in which grey structure cost comes to Rs800-1,000 while the rest is finishing cost including aluminium fitting, paint, doors, sanitary, tiles, etc.

Steel-bar makers have already raised prices by Rs5,000-7,000 a tonne due to the latest budgetary measures, he said.

Nabeel Khursheed of Topline Securities said cement sales grew 5pc in the just-ended fiscal year on the back of a 10pc year-on-year rise in local sales, which overshadowed a drop of 23pc in exports.

It was the second double-digit growth in domestic sales in two years thanks to ongoing residential projects by real estate developers like Bahria Town, DHA City, Fazaia Housing Scheme, Naya Nazimabad, Emaar, etc, and construction of infrastructure projects under the China-Pakistan Economic Corridor.

The industry utilisation in 2016-17 was likely to stand at 89pc as against 85pc in 2015-16, he said.

Moreover, under Public Sector Development for 2016-17, the government released 90pc of the revised allocation target of Rs715bn. The construction sector grew 9.1pc in the previous fiscal year compared to previous five years’ average growth of 6.3pc, according to Pakistan Economic Survey for 2016-17.