Cement export ban not to contain inflation

Even as the government has notified the ban on cement exports with effect from Friday, steel producers today said the ban will not be effective in containing the price rise, given the fact that cement exports account for only 3 per cent of domestic production. Industry added the move would deter it from enhancing capacity.

"Exports of cement constitute only 3 per cent of production and 90 per cent of the exports are from companies located around the Gujarat coastal area. Most of these companies are small and mainly export to South Africa and Sri Lanka, as is obvious from their location and country focus. Therefore, the steps taken by the government on banning cement exports would not be effective to contain the price rise," a Confederation of Indian Industry release said.

CII called on the government to consider reducing the excise duty of cement, a move that it said would help in controlling prices.

Separately, the Indian Steel Alliance today appealed to Prime Minister Manmohan Singh to take into account the negative consequences of banning exports of cement and steel. "The total percentage of exports of steel at the moment are not more than 6-8 per cent of total production. Would a total ban on the export of steel make it available at significant quantities within the country to ease inflation pressures", president Moosa Raza said.

The export ban ban comes after cement companies increased prices of the commodity by Rs 5 per 50 kg bag earlier this month. In the period between April 2007 and February 2008, cement exports stood at 3.33 million tonnes, down 38.78 per cent over the corresponding period of 2006-07 on account of higher price realisation in the domestic market.

Meanwhile, Commerce Minister Kamal Nath today clarified that the ban will not be effective on deemed exports made to EoU's and SEZ's. “We will issue a corrigendum in this regard,” Nath said at a meeting organised here by the Federation of Indian Chambers of Commerce and Industry. As per current norms, supplies to SEZ's and EoUs are considered deemed exports.

Nath also added the Cabinet Committee on Prices will meet next week to take stock of the price situation. The wholesale price index based inflation rose to a three and a half year high of 7.41 per cent for the week ended March 29.

“We have banned exports of cements. The Steel Ministry is considering many steps to bring down prices in the sector. The message is clear that the government is ready to take whatever steps required to control prices,” Nath said today at the sidelines of a CII seminar on the annual supplement to the Foreign Trade Policy 2004-09.

Sources added the CCP may meet as early as Tuesday and consider measures like banning export of steel and steel products, levying ad-valorem duty on iron ore exports and bringing down excise duty on steel to 8 per cent from the current level of 14 per cent.

Ban looms over cement exports

Export ban will augment domestic availability, soften prices.

With rising prices spoiling the economic growth party, the government is ready to crack the whip beginning with a ban on cement exports.

Simultaneously, efforts are on to increase imports from Pakistan, which is willing to supply up to 11 million tonnes.

Yesterday, in the midst of the government’s multi-pronged crackdown on inflation, the cement producers had announced a rise in prices.

The export ban will augment domestic availability while the cheap imports from Pakistan will soften prices.

“The government is considering a ban on cement exports. This follows the recent increase in prices by the industry,” said a senior government official.

According to All Pakistan Cement Manufacturers’ Association, the country has supplied 457,624 tonnes to India so far. Cement imports picked up only in September last year, when they became viable as a result of a duty cut.

Nearly all imports come from Pakistan at an average landed price of Rs 170-175 for a 50 kg bag. This is much lower than the prevailing domestic prices of Rs 230-235 in north India.

Cement producers in west India have increased prices by Rs 5 a bag, while a similar rise is expected in the north in the next few days. On an average, cement prices have increased by Rs 10 a bag since April 2007.

Cement exports between April last year and February this year stood at 3.33 million tonnes, down 38.78 per cent over the corresponding period of 2006-07 on account of higher price realisation in the domestic market. The major cement exporting companies are Gujarat Ambuja and Aditya Birla group’s Ultratech.

India’s annual cement production is estimated at 165 million tonnes. Cheaper imports of 10-11 million tonnes can soften domestic prices, feel experts. In January 2007, India scrapped duties on cement imports, following it up by abolishing the 16 per cent countervailing duty four months later.

Budget Analysis - Cement Sector

CEMENT The excise duty on bulk cement put at Rs 400 a tonne or 14 per cent ad valorem, whichever is higher.

The measures

The finance minister pegged the excise duty on bulk cement at Rs 400 a tonne or 14 per cent ad valorem, whichever is higher. Simultaneously, he raised the excise on cement clinker to Rs 450 a tonne from Rs 350 a tonne.

The context Last year, the government had imposed a dual excise duty based on the retail prices of cement. If the retail price of a 50 kg bag was not above Rs 190, it attracted an excise duty of Rs 350 a tonne. If the price exceeded Rs 190, the levy was Rs 600 per bag. However, the government later put an ad valorem duty of 12 per cent on cement for a cement bag that exceeded Rs 190 to up to Rs 250 a bag. Industry players called it a confusing system.

The impact “More or less, there will be no impact on cement players. And there are no chances of any change in cement prices,” said H M Bangur, president of Cement Manufacturers’ Association and CMD of Shree Cement.

Since, bulk cement constitutes less than 5 per cent of the total cement sales, sector analysts said the increase in excise on bulk will be marginal and that too for institutional buyers. Market experts said companies might pass on the increased costs to bulk consumers and the rise could be around Rs 200 a tonne.

Cement prices inch up across markets

After steel, it’s the turn of cement manufactures to jack-up prices. Cement prices are now inching up across most markets, the first round of widespread ramping-up of prices following a self-imposed moratorium agreed to by cement manufacturers last March.

While South-based cement manufacturers were the first to increase prices, the trend is pretty much catching up in the Northern and the Western markets as the demand-supply mismatch continues across the country.

According to industry players, price increases of up to Rs 10 per 50-kg bags are being witnessed across some regions, with further escalations predicted during the course of the year as no major capacities are expected to come up until the end of calendar year 2008.

TN condition

Industry players said a favourable demand-supply situation in the South enabled cement firms to kick-start price increases. In Tamil Nadu, the State Government has already stepped in to ask manufacturers to rein-in prices. There are reports of price increases of around Rs 5 per bag across Uttar Pradesh and Maharashtra, with key market such as Mumbai already facing price hikes of over Rs 5.

Cement firms contend that the price rise is in sync with increasing commodity prices, with steel prices having already been hiked by 10 per cent recently. “Demand for cement is expected to grow faster than supply with rapid infrastructure development and real estate projects taking off across most towns and cities, leading to firmer prices,” a Delhi-based analyst said.

Demand centres

Also, a mismatch in the location of key demand centres and upcoming production facilities could contribute to the price trends going forward. While the Northern region led the growth in cement production last year, the West topped the consumption list, accounting for around 16 per cent, followed by the South and North zones with 11 per cent each. This trend is likely to be seen during 2008 as well.

Further, even if the supply situation were to catch up with demand by 2009-10 (as per projections), Southern markets, including Tamil Nadu and Kerala, are expected to be partly insulated from a correction because of their large distance from the North, where surplus capacities are first expected.

The Western region, which could have serviced some Southern markets, is expected to be in deficit for at least the next three years, according to analysts.

Companies to sell cement in TN at Rs 200/bag

Within a week of the Tamil Nadu government's threat of taking over cement factories in the state if the companies did not cut prices, cement manufacturers have offered to sell 20 lakh bags of blended cement every month in all districts of Tamil Nadu at a subsidised price of Rs 200 per 50 kg bag.

Top officials of cement companies like India Cements, Madras Cements, Grasim Industries, Associated Cement Companies, Ultratech Cement, Dalmia Cement and Chettinad Cement met Tamil Nadu Chief Minister M Karunanidhi today, and submitted their joint acceptance letter stating their intention to make available cement at reduced prices.

Each cement company in the state will adopt certain home districts near their place of opeations, and extend the benefit of subsidised cement to economically backward sections and lower middle class in these areas.

District-wise quantities offered by each company will be submitted separately, according to the letter submitted to the Chief Minister by the cement companies.

The cement bags will be delivered to consumers against permits to be issued by district officials. Cement producers located outside the state but supplying cement to Tamil Nadu will also participate in the scheme, the statement said.

To procure cement at Rs 200 per bag, consumers need to get their approved plan verified by district officials. Based on a thumb rule, which defines that construction projects up to 500 sq ft in area will require about 200 bags of cement, the official will issue permits to cement companies for the quantity required for each construction. Purchases will be in minimum lots of 50 bags.

Since the purpose is mainly to cater to the economically backward sections and the lower middle class, maximum permit quantity for any individual may be limited to 400 bags for constructing a structure of maximum 1,000 sq.ft area. It has also been said that district officials may hold a review meeting with cement producers at the end of every month.

Cement manufacturers have also agreed to reduce the price of cement bags committed to the Tamil Nadu Cements Corporation (Tancem). The companies will supply 14 lakh bags of cement per month to Tancem at Rs 220 per bag as against the earlier price of Rs 230 per bag.

TN cement firms may reduce prices by Feb 10

Private cement manufacturers have agreed to reduce cement prices before February 10, following the Tamil Nadu government's warning to take over cement factories in the state, if they failed to contain rising prices.

N Srinivasan, MD, India Cements met Chief Minister M Karunanidhi today, on behalf of the cement manufacturers and discussed the issue, an official release said.

Srinivasan had assured the Chief Minister that he would get back to him with a positive result after holding talks with other manufacturers before February 10, the release added.

The state government had on Wednesday last announced that it had no alternative but to takeover private cement factories in the state, if they did not come forward to reduce cement prices in public interest.

It had also decided to import 1 lakh tonne of cement by Tamil Nadu Cements Corporation through Metals and Minerals Trading Corporation and distribute through the state civil supplies corporation, the release said.

The construction industry and political parties had flayed the state government for not taking steps to reduce the cement prices. Shortage of cement had brought construction activities of the government and public to a grinding halt.

Cement companies criticise TN govt's takeover threat

Cement manufacturers have criticised the Tamil Nadu government’s threat to take over cement units in the state if prices do not come down in the near future.

Top officials of the cement companies speaking to Business Standard, said the state government’s intention to nationalise the cement companies on the allegation that they were keeping the prices at a higher level through cartelisation of the commodity was “unfortunate and meaningless”.

A statement, which was issued after a high-level meeting under the chairmanship of the Chief Minister M Karunanidhi, yesterday said, “If private cement companies do not come forward to reduce the prices, the government will be left with no option but to take over the cement factories in the state in public interest.” The statement also said that the government would import 100,000 tonnes of cement through MMTC to tide over the shortage of the commodity.

The official statement of the state government has come at a time when the prices in the country had stabilised for over four months, industry players said. In the southern region, the retail prices are hovering around Rs 240-250 a bag (of 50 kg). The government intended to sell imported cement at Rs 160 a bag.

The chief executive officer of a south-based cement firm said that the sudden announcement from the government was “surprising”, but the industry chose not to react to the government move. “We are keeping quiet on the issue for the time being”, said owner of a company having production unit in the state.

According to the deputy managing director of a north-based cement firm, the basic premises of the threat to take over cement units was unacceptable in a democracy.

“Especially at a time when there is no cartelisation and prices are being fixed by the demand and supply factors, state government’s recent statement is discouraging,” he added.

It is the first time that any state government has intervened in the cement industry. The actions of the central government last year in order to rein in the galloping cement rates had almost put brakes on further hike since April 2007, with prices hovering around Rs 240 a bag. Experts tracking cement industry said that it was not possible to take over units and nationalise them. The government’s statement is just an arm-twisting ploy to bring down prices as a part of its populist measures.

Mumbai-based analysts said that import of 100,000 tonnes of cement in a short time seems to be unrealistic due to lack of logistical infrastructure coupled with the recent turmoil in Pakistan (the main cement exporter to India).

Tamil Nadu is expected to add around 8-10 million tonnes of fresh capacities this year. The state, which currently has a capacity of over 17 million tonnes per annum, houses units of ACC, Indian Cements, Madras Cements, Chettinad Cement, Dalmia Cements, UltraTech and Tamil Nadu Cements.

The companies whose plants are coming up this year include Chettinad, Dalmia and Madras Cements. Market sources said that once the capacities in the pipeline go onstream, prices might see a cut of 20-30 per cent in the region.