Mumbai: The Union government last week banned cement exports in an attempt to boost supplies and contain prices of the commodity as inflation continued to rise. The move was in part a response to the manufacturers’ decision to increase prices by Rs7 per 50kg bag, citing production costs.
The ban could hurt companies such as Ambuja Cements Ltd, India’s largest cement exporter and third biggest manufacturer. Ambuja Cements, in which Switzerland’s Holcim Ltd owns about 46%, has a production capacity of 17 million tonnes (mt). Still, its managing director A.L. Kapur is not too worried. With exports barely 2% of India’s domestic production, the ban cannot address supply or price issues, he said in an interview.
In 2007, the company earned Rs277.5 crore from exports out of its total revenue of Rs5,704.84 crore. The figures for the previous year were Rs383.7 crore and Rs6,274.52 crore, respectively. Edited excerpts:
Will the ban on cement exports help bring the prices down?
The ban is hardly of any relevance. Most of the cement exports in India occur out of Gujarat, which has an additional capacity to cater to the export demand. Even if they cannot export this cement now, it is not feasible to transport it to other states. We (cement companies) have anyway been bringing down exports on our own as the prices we get from abroad are lower than the domestically rates.
In 2007, Ambuja Cements’ exports went down to 1.3mt from 1.8mt in the previous year. For calendar 2008, we have signed export contracts for 0.6mt so far, less than half of what we did last year.
Will the government’s efforts to control inflation have serious implications for the cement sector as well?
Coming after the cement industry is not the solution the government should be looking at. The inflation problem is more because of rising food prices than anything else. Cement’s weight in the inflation index is 1.3%. We are actually victims of rising inflation ourselves. The 85% rise in coal prices in 2007 has reduced our margins significantly.
In January last year, Ambuja Cements was importing coal at about $70 per tonne, but the cost...increased to about $130 by the end of 2007. In effect, the input cost from rising coal prices put an additional burden of Rs12-13 per 50kg bag of cement, while we raised the prices only by about Rs6-7.
Increasing cement prices have been a contentious issue in the past. Do you see a further rise in the prices?
The industry has tried to behave itself in the past year, when cement prices have risen by only about 7%. We have not transferred the entire rise in input costs to our customers. If the input costs keep rising, we will have no option but to raise prices. (A 50kg bag sells at about Rs260 in Mumbai.)
What do you think the government should do to keep cement makers from raising prices?
There is a value-added tax of 12.5% on cement, while for steel it is only 4%. Currently, on every tonne of cement sold domestically, Rs1,100 goes towards tax. This alone translates to about Rs55 on every 50kg bag of cement sold...we have also to pay freight charges for transportation...
Do you think the government’s plan to double cement imports from Pakistan help boost domestic supplies and lower prices?
We would actually encourage the government to import cement... But, the government should also look at having a level playing field. If the government were to give the domestic companies some of the benefits that it is offering to imported cement, the prices in the domestic market would automatically come down. (No duty is levied on cement from Pakistan, and no countervailing duty or special additional duty on ordinary Portland cement, which comprises the majority of cement imported into India.)