LAHORE - The cement volume growth may cross the figure of 4 per cent in fiscal year 2013-14, as the National Economic Council has approved a 32 per cent hike in PSDP allocation to Rs1,155 billion in upcoming budget, with expected share of the federal government at Rs540 billion and provincial share of Rs615 billion.

The same, if fully utilized, could provide a major boost to cement volumes in FY14, industry experts claimed. “Given fiscal constraints of the government, they remain cautious on building full PSDP disbursement, however it is expected that local cement production growth will touch at least the mark of 4 per cent annually in FY14. With Federal Budget due to be announced on Wednesday, experts believe the cement sector will be in focus given uplift in PSDP allocation, possible duty imposition on imported coal, implementation of withholding tax on coal, hike in GST to 17% and FED changes.

It is expected that the govt may impose a 5% duty on import of coal. This is likely to have an increment cost impact of Rs4-5 per bag. While imposition of import duty on coal would hurt margins if the impact is not passed through, they see a greater likelihood of cement producers passing through the cost impact, given current strong pricing power within the sector.

Likewise, a possible WHT of 0.5% has been suggested on coal. Since the same is a refundable tax (at the final stage) it is unlikely to cause any major headaches to the industry. This is unlikely to hurt profitability of cement producers as the industry is likely to pass on the impact to the final consumer.

Experts estimate a 1% hike in GST to 17% would entail a Rs3-4/bag cost pass-through for the industry.

The PML-N government, in its effort to reduce the fiscal deficit, is likely to halt the process of phasing out of Federal Excise Duty (FED). This process was started by the previous government two years back in order to boost construction activity and create jobs in the country. FED on cement was at Rs700/ton in FY11 which was first reduced by Rs200/ton in FY12 budget and then by a further Rs100/ton in the FY13 budget to its current level of Rs400/ton.