Monica Gupta and Shilpa Shree
After meeting commerce and industry minister Kamal Nath on Friday, cement manufacturers agreed to cap cement prices for one year.
They also decided to absorb all the additional costs themselves and agreed that if any concession is given to them by way of excise duty and other statutory levies, they would pass on the entire benefit to the consumers, an official release said.
“The companies have bowed to government pressure. In any case, they could not have hiked the prices above Rs250 as imports would have become viable,” says Harender Kumar, head of research, ICICI Direct.
The cement manufacturers had opposed the government’s move in the Union Budget to effectively place price ceilings by imposing an additional excise duty of Rs200 per tonne on cement sold at more than Rs190 per bag (MRP). Immediately after the Budget, they had raised prices by Rs12 per 50-kg bag to Rs250-260 in Mumbai, India’s largest cement market.
Nath met senior representatives of the industry, including Manoj Gaur, president of Cement Manufacturers’ Association, and EN Murthy, secretary general of CMAI, in the context of the recent price hike. “We will also absorb rise in input costs in future,” said Murthy after the meeting.
“There could be some some reduction in duties in the coming days,” said a source close to the discussion. “But the announcement of reduction in duties, if any, is likely to be announced in a month’s time.”
The cement producers explained at length the reasons for their inability to absorb the higher excise duty, including the increase in the cost of raw materials particularly fly ash, higher energy cost and transportation charges.
In particular, they drew the government’s attention to the higher price of coal required to be obtained by them from the open market. They also mentioned that the sustainable way of controlling prices was to increase supply faster than the demand, which was growing at 10% annually. They have, therefore, taken measures to expand installed capacity by almost 100 million tonnes in the next three years by incurring an expenditure of over Rs40,000 crore.
During the past three years, production capacity, capacity utilisation, capacity addition and actual production of cement have increased substantially. The capacity utilisation was 98% in December 2006 and 102% in January 2007.
The government had reduced import duty on cement to zero from 12.5% in January 2007. Despite this, there was no import of cement since the landed cost would be more expensive by 15%.
Apart from prices, there are logistic issues such as the lack of port-based bulk terminals and facilities for bagging cement which inhibit import, a government official told Mint.
The official pointed out that India had exported 6.01 million tonnes (mt) of cement and 3.18mt of clinker during 2005-06, which constituted merely 6% of its totalproduction.
Cement stocks took a beating on the Bombay Stock Exchange on Friday, losing 4-9%, way above the benchmark Sensex’s loss of 1.26% . The biggest loser was South India-based India Cements which lost 8.18% to close the day at Rs153.25. ACC was down 6.3% to close at Rs780.85, Gujarat Ambuja was down 2.61% to close at Rs109.95. Aditya Birla group companies Ultratech and Grasim lost 4.76% and 7.43% to close at Rs779.5 and Rs 2,069.15, respectively.
Over the last one week, while the manufacturers and the government wrestled it out over the issue of price rise, the cement stocks fell 9-11%.
The biggest loser was Ultratech, which shed 11.91% from its 2 March closing price of Rs872. India Cements lost 9.29% from its 2 March close of Rs168.95, ACC lost 8.73% from last Friday’s closing price of Rs855.55.
“Our estimates for the companies remain the same. If the demand and input costs go up, it will have a negative impact on the industry,” said an analyst tracking the sector for a local brokerage.
“If the excise duties are bought down, we will immediately reduce the price of cement,” said D Soundarajan, executive director, Binani Cements.