Business   

Additions to cement capacity gain urgency

— FILE PHOTO

BUILDING up STOCKS: Cement stored in a godown in Chennai.

Some of the State governments and consumer groups have been protesting against the price of cement shooting up in the market over the past 12 months. Cement prices have risen by at least 10 per cent in a year, thanks to a spurt in consumption. The major infrastructure projects under implementation in different States, the recent boom in the real estate sector, and the various projects taken up by the Central and State governments in the social and health sectors have all c ontributed to the steady increase in consumption. As such, supply does not keep pace with demand, and cement manufacturers as well as distributors have earned enormous profits in 2007. Even if the stock market has taken a beating in recent days, and the infrastructure as well as cement companies have lost ground in that mayhem, most cement manufacturers have shown handsome profits in the first three quarters of 2007-08. That trend may well continue into the next year.

Tamil Nadu, Andhra Pradesh, and Maharashtra have been in the news in the agitation against the steep rise in the cement price. The price ranges from Rs. 160 to Rs. 260 a bag of 50 kg, depending on the location and the local taxes.

The Andhra Pradesh Government launched a massive housing programme for the poor throughout the State last year. This obviously led to increased consumption and demand. Chief Minister Y. S. Rajasekhara Reddy sought permission from the Centre to import cement, and this was cleared. But his Government realised that the problem lay in the procedures to clear the imported cement. There were duty exemptions and even the earlier countervailing duty was withdrawn to reduce the price. The Centre also readily cleared Tamil Nadu’s request for import of cement to help bring down the price. In Maharashtra, the builders protested against what they called ‘cartelisation’ by some of the cement manufacturers and even tried to boycott a couple of them. But that was given up.

Following Tamil Nadu Chief Minister M. Karunanidhi’s decision to import cement and also distribute it through the State Civil Supplies Corporation to the middle and lower middle class families that wanted to build houses (against sanctioned plans), a team of cement manufacturers led by India Cements chief N. Srinivasan, met the Chief Minister. They offered to supply cement to this scheme at Rs. 200 a bag.

The problem with the import of cement, government officials explain, is the procedure. As they have to be sample tested, for the Bureau of Indian Standards (BIS) marking, it could take at least three weeks to clear any shipment. The shipping and demurrage costs added to the overall cost and the procedures were so cumbersome that the whole exercise became a difficult proposition. Meanwhile, the cement manufacturers were up in arms protesting against the duty concessions and withdrawal of countervailing duty on imported cement.

Enquiries with the market and the dealers show that there is no downward trend in the cement price. “Given the current rate of growth of the economy, the number of infrastructure projects under implementation, and the construction boom, we do not expect any slowdown in demand in the near future. Delaying projects can only contribute to cost escalation,” reasons S. Balakrishnan, a development consultant.

On their side, the Cement Manufacturers’ Association, in its pre-budget memorandum to the Centre, has sought a reduction in taxes and levies to make cement affordable for housing and infrastructure projects. “Cement is one of the highest taxed essential infrastructure inputs in the country, with levies and taxes together constituting more than 60 per cent of the ex-factory price,” the association said.

The manufacturers have also asked the State governments and the Centre to bring down the VAT rate to 4 per cent from 12.5 per cent. Seeking a level playing field, they also want the Centre to re-impose the countervailing duty on imports.

According to industry sources, most cement plants are going through a phase of expansion and new units are coming up. Current capacity in the country was 173.08 million tonnes against 166.73 million tonnes last year. While the northern region led the growth in cement production, the west topped the consumption list — accounting for 16 per cent, followed by the south and north zones with 11 per cent each. “We will continue to add to capacity and are already working to 90 to 95 per cent capacity utilisation. Given the gestation period for additions and the linkage to coal, it takes time to install new capacity. But that is the only way to meet the demand. How many people remember that we were in the doldrums some three or four years ago? There are ups and downs,” says the Chief Executive of a cement unit with plants in three States.

V. JAYANTH

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

Market turmoil will sway macro policies financial scene
Emerging text-to-speech utilities netspeak
Additions to cement capacity gain urgency
Premature withdrawal of NSC certificates
Reverse mortgage loan on joint family property

Copyright © 2008, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu