Chennai: A day after the Tamil Nadu government claimed it will take over private cement factories if they failed to reduce cement prices, industry officials held their ground pointing to demand that was outstripping supply and dismissed the state’s idea of using imports to sell cheaper cement.
After a meeting chaired by Tamil Nadu chief minister M. Karunanidhi on 2 January, the state government threatened to “nationalize” the cement plants and also said it would import 100,000 tonnes of cement through Minerals and Metals Trading Corp. Ltd, the Union government trading company, and sell it below marketprice, which is at Rs230-250 per 50kg bag.
Prices have risen by about 25% in the past year. Several major cement companies, including Madras Cements Ltd, India Cements Ltd, Chettinad Cement Corp. Ltd, Dalmia Cement (Bharat) Ltd and ACC Ltd, have factories in the state.
“These are just statements for public consumption,” said one industry official who did not want to be named due to the sensitivity of the issue. He added that the state government was issuing “empty threats” and claims that the government cannot do it in an “open business environment”. Questioning the practicality of cement imports by the government, he said that the government has been threatning to do that for the past one year.
Vineet Nigam, a vice-president of Icra Ltd, the ratings firm, says that the threats alone might help reduce prices by Rs2-3 per bag. But, an official from a large cement manufacturer in the state, who spoke to Mint on the condition he wouldn’t be identified, said prices might come down but only over the next one to three years, as additional capacity of around 100mt is expected to be added. “For now, even if we cut prices, dealers won’t, because of the supply-demand mismatch,” he noted.
Import solution: Tamil Nadu chief minister K.Karunanidhi.
He also pointed out that even if the government imported cement, by the time handling, freight and storage charges are included, the prices would come to what are prevailing in the market now for domestic cement. In the first six months of 2007-08, the consumption level in Tamil Nadu has been recorded around 1.2mt per month.
Nigam says India’s cement industry, which was losing money as recently as 2000, has sharply improved its financial health over the last three years. An Icra study shows that operating margins of the Indian cement industry have improved from 19% in 2005-06 to 32% so far this fiscal.
In Thursday’s trading, India Cements fell 2.88% to close at Rs298.15 a share while Chettinad Cement also fell 2.2% to close at Rs474.8 a share. Madras Cement closed 0.76% lower, at Rs4,431 a share on a day when the benchmark Sensex index lost 0.5%.