Cement Manufacturers coming back at Govt.

The cement price tussle between the government and manufacturers continues. Last evening the government cut the countervailing and additional customs duties.

Today, perhaps in response to the announcement, it is being heard from sources that Cement Manufacturers Association may consider cancelling the cement price freeze pact with the government. However, CNBC-TV18 has not yet received any final confirmation from the government and CMA.

After coaxing the cement industry to freeze prices, the Finance Ministry has removed 16% countervailing duty and 4% Special Additional Customs duty on imported cement. This has been done in order to make imported cement more viable than domestic cement.

However, JK Cement states that the industry has not yet submitted any proposal for a re-look at prices. Newspaper reports suggest that the government may think of banning cement exports next.

CLSA has downgraded ACC and Gujarat Ambuja from underperform to sell, India Cement from outperform to underperform. It also feels that the cement price cut seems unlikely to stay as the industry may not want cement imports to get established.

Meanwhile, the Pakistani PM Pervez Musharraf has expressed an interest in supplying cement to India.

However, Sanjay Ladiwala of Cement Stockists and Dealers Association mentions that he has not heard of any move from CMA as of now. He adds that logistical hurdles would restrict imports.

He says, "Imports are not going to be surging in as its envisaged or people thing it could be mainly because of logistical obstacles in most of the port areas I don’t think we are going to see such a fantastic flow of imports that is going to breach the gap between demand and supply. Firstly with that provision in mind, it’s after all the customer who is going to really go in for imports. Now the customer has to be motivated sufficiently to go ahead and take on the hassle of importing cement, albeit it maybe a few rupees cheaper, yes would land at about Rs 20-25 cheaper."

According to him, cement prices may stay subdued in areas near ports. He says that clients may not want the hassles of imports. Furthermore, Ladiwala says that monetary incentive is not enough motivation for imports.

According to Ladiwala, "Unless he has got adequate motivation the customer is not going to import and that would also be an obstacle in the surge of imports coming into the country. Once they do the prices would stay subdued in these port areas which according to my estimates would be either 3-4 ports in India itself and not more than that."

Also, earlier prediction of excess supply in 2010 may not happen, he adds.

Indian Government becoming adamant on reducing the Cement Price

In yet another twist to the ongoing spat between the Government and the cement manufacturers, the Centre on Tuesday announced that it was doing away with 16% Countervailing Duty (CVD) and 4% Special Additional Duty (SAD) on Portland Cement. "The Government expects that the cement manufacturers, in the larger interests of consumers and for checking inflation, will take appropriate measures for moderating cement prices,'' the Finance Ministry said in a statement.

The move is likely to make imported cement cheaper than domestic cement. At present, imported cement is slightly expensive than local cement. Average cement prices increased to Rs220 per 50-kg bag in March from Rs165 in January and Rs209 in February, the Government said.

The Government, with a view to keep prices of cement in check, had fully exempted basic customs duty on portland cement in January. The cement industry was requested to moderate prices in the interest of the consumer. However, the industry is of the view that prevailing high prices are a consequence of a demand-supply mismatch. "It is expected that the present move will improve supply situation in the country," the Finance Ministry said.

The Government has already invited cement manufacturers to come forward with proposals to moderate the price of cement. "The Centre expects that cement manufacturers, in the larger interests of consumers and for checking inflation, will take appropriate measures for moderating cement prices," the Finance Ministry said.

It may be recalled that the Government has been seeking a reduction in cement prices for quite some time now, but cement makers have refused to toe the Centre's line, offering to freeze prices at the current level for a year. The standoff between the Government and cement manufacturers started when Finance Minister P. Chidambaram announced a dual excise duty structure on cement in the Budget for the year 2007-08.

Chidambaram proposed an excise tax of Rs600 per metric ton on cement sold at more than Rs190 a 50-kg bag. For cement priced below Rs190 a bag, the tax was cut to Rs350 a ton from Rs400 starting April 1. In response to the Finance Minister's move, the cement companies raised the prices and have repeatedly turned down the Government's call for a cut in cement prices, leading to a deadlock over the issue.

FM proposes, cement cos dispose

Union Finance Minister P Chidambaram appears to have succumbed to the pressure of cement manufacturers on the cement price issue as he is now seeking "new proposals from them to moderate cement prices."

After several unsuccessful attempts to convince them to roll back the price hike, the Finance Minister on Thursday asked the cement companies to come up with new proposals to moderate cement prices.

But the cement manufacturers quickly spurned him, saying there is no scope for moderating the prices.

The manufacturers have stood steadfast on their decision to hike cement rates following the upward revision of excise duty on cement in the Budget.

They have also refused to toe Chidambaram’s line on the issue and are unwilling to bring down the prices in spite of tax incentives in the Budget for cements selling in a lower price band.

The Finance Ministry has been making all-out efforts to convince them to slash cement prices after they hiked the rates by up to Rs 12 per 50 kg bag following the upward revision of excise duty.

In Budget 2007-08, Finance Minister had announced increase in excise duty from Rs 400 to Rs 600 per tonne for cement sold at above Rs 190 for a 50 kg bag, while slashing duty to Rs 350 for cement sold up to Rs 190 a bag.

But after repeated efforts, the government has failed to convince them to bring down the prices. Chidambaram himself met the cement manufacturers after the Budget, but failed to persuade them to cut prices.

Later, in a meeting with Commerce Minister Kamal Nath, the cement manufacturers had agreed to not increase the prices for a year. They, however, continued to hold their line and ruled out any rollback in the prices unless the government brings down excise duty.

The Finance Ministry, too, has ruled out any rollback of the new excise duty structure, but assured the cement industry that all assistance would be provided to them in accessing raw material to raise production capacity.

FM proposes, cement cos dispose

Union Finance Minister P Chidambaram appears to have succumbed to the pressure of cement manufacturers on the cement price issue as he is now seeking "new proposals from them to moderate cement prices."

After several unsuccessful attempts to convince them to roll back the price hike, the Finance Minister on Thursday asked the cement companies to come up with new proposals to moderate cement prices.

But the cement manufacturers quickly spurned him, saying there is no scope for moderating the prices.

The manufacturers have stood steadfast on their decision to hike cement rates following the upward revision of excise duty on cement in the Budget.

They have also refused to toe Chidambaram’s line on the issue and are unwilling to bring down the prices in spite of tax incentives in the Budget for cements selling in a lower price band.

The Finance Ministry has been making all-out efforts to convince them to slash cement prices after they hiked the rates by up to Rs 12 per 50 kg bag following the upward revision of excise duty.

In Budget 2007-08, Finance Minister had announced increase in excise duty from Rs 400 to Rs 600 per tonne for cement sold at above Rs 190 for a 50 kg bag, while slashing duty to Rs 350 for cement sold up to Rs 190 a bag.

But after repeated efforts, the government has failed to convince them to bring down the prices. Chidambaram himself met the cement manufacturers after the Budget, but failed to persuade them to cut prices.

Later, in a meeting with Commerce Minister Kamal Nath, the cement manufacturers had agreed to not increase the prices for a year. They, however, continued to hold their line and ruled out any rollback in the prices unless the government brings down excise duty.

The Finance Ministry, too, has ruled out any rollback of the new excise duty structure, but assured the cement industry that all assistance would be provided to them in accessing raw material to raise production capacity.

Pak's DG Khan Cement eyes Indian market

Pakistan's top cement producer DG Khan Cement (DGKC) is eyeing the Indian market to sell its surplus output after a new plant starts production next month, a top company official said.

DGKC will increase its production by 7,000 tonnes per day to 4.66 million tonnes per annum after the opening of the new plant, bought from Denmark for around 14 billion rupees ($230.6 million).

The firm currently produces 2.11 million tonnes of cement annually. Inayat Ullah Niazi, chief financial officer of DGKC, said the company exported 1,500 tonnes of cement to India on a trial basis last month, but did not say how much more will be exported. "Depending on the queries we receive and once we enter the Indian market only then the quantity to be exported can be determined," he told Reuters by telephone from Lahore.

DGKC exports around 10,000 to 12,000 tonnes monthly to Kandahar in neighbouring Afghanistan and also plans to boost its sales in other cities of Afghanistan, including Kabul. "Our first preference is naturally to capture the local market and then we will be more interested in exports," Niazi said. Niazi said the company had already started trial production from its newly-enhanced capacity and would start commercial production by the end of this month.

DGKC shares closed Rs 1.15 or 1.3 per cent down in a broader market which was down 1.1 percent.

Tussle goes on for Cement Pricing - Government vs. Cement Industry

The government on Wednesday said no deal has been worked out with the cement industry to roll back prices that were hiked after the Budget proposal for dual excise duty on the construction raw material.

"Nothing is on anvil," Commerce and Industry Minister Kamal Nath said when asked whether the government and the industry have worked out a compromise formula. He said if need arises another meeting would be held with cement manufacturers. The Department of Industrial Policy and Promotion has already held a meeting with the producers.

"We are waiting for their feedback (on government's request to control prices)," Nath said. On Tuesday, the Commerce Minister had said that if companies were found to be profiteering the government would take measures to control prices. He had said that companies should absorb the levies if they could.

NCL Inds sees cement demand go up

K Ravi, Managing Director at NCL Industries comments on the company's future plans. He said that as a mini-cement plant, they have some concessions on excise duty, which still continue to enjoy that benefit now.

He adds that the demand is good and he feels that in the the next couple of months it's going to go up. According to him, if that happens then they might have to charge the extra duty also to the consumers.

Excerpts from CNBC-TV18's exclusive interview with K Ravi:

Q: How much are you selling each bag in Hyderabad for, at this point of time?

A: We are selling at around Rs 180-190 in Hyderabad.

Q: You walk right into the Finance Minister's good books and get the reduction on excise. Could you quantify that benefit for us?

A: As a mini-cement plant we have concession on excise duty for the first 99,000. As a mini cement plant, we still continue to enjoy that benefit now and it is only after we cross that 99,000 mark of production that we may probably have to revise prices.

Q: Do you see an upward pressure coming in on prices considering the demand that is prevalent?

A: The demand is good and particularly in the next couple of months it's going to go up.

Q: Would prices also go up in line and if so by how much?

A: Probably immediately we may have to pass on this Rs 12 a bag and cross the Rs 200 barrier in which case, we will have to charge the extra duty also to the consumers.

Q: Just a word on your capex plans – you are planning to double your capacity close to about six million tonne. You are setting up a grinding unit and as far as we know you are setting up a cement-bonded wood particle board plant as well. How are you planning this entire capex?

A: We are almost at the fag end of the capex plan. The board plant trials are going on at Ponta Sahib and probably this month we will be starting regular production. Similarly the grinding unit at Kodapalli near Vijaywada, the trial runs are going on, which too will be commissioned in this month and the third is increasing the clinkering capacity that probably we will be able to complete in the month of April.

The State Bank of India is financing the grinding unit; similarly UTI will fund the board plant at Ponta Sahib as well as the energy efficiency project in Mattapalli - the clinkering capacity, which will be financed by IRDA.

In addition to this, now we plan to implement another eight to lakh tonne clinkering unit at the existing plant - the debt portion of which will be taken up the SBI and the State Bank of Hyderabad.

Q: What will be the total cost of setting up all these three plants? Does it work out to be in excess of Rs 100 crore?

A: All the three projects put together is around Rs 80 crore.

Q: What is the interest burden that is associated with the loans that SBI and UTI have given you?

A: It is going to be around 11% whereas the IRDA has given a concessional price because it is a World Bank like credit.

Cement prices up in West and North India

A day after Finance Minister P. Chidambaram slapped a 50% increase on costlier cement bags, manufacturers in western and northern India hiked prices by Rs12 per 50-kilogram bag with immediate effect.

Chidambaram raised the excise duty on cement priced above Rs 190 per 50 kg to Rs 600 per ton from Rs 400 in the union budget for the fiscal year 2007-08. At the same time he cut the duty on cheaper cement bags to Rs 350.

Post the hike, average wholesale price of cement in Mumbai would be Rs 233 per 50 kg bag while the retail price would be Rs 245, said Sanjay Ladiwala, President of the Cement Stockists & Dealers Association Bombay.

Separately, the Government called on cement companies to cut prices. Chidambaram too reiterated his request that the Indian industry should help the Government contain inflation by holding prices.

Shares of companies such as ACC, Gujarat Ambuja Cements, Grasim, India Cements and UltraTech Cement recovered from their day's lows. Yesterday, these stocks had slumped badly following the announcement of the hike in excise duty in the budget.

Short Name	Close (Rs)	% change	High (Rs)	Low (Rs)
ACC	876.55	-2.61	912	841.1
Gujarat Ambuja Cement	111.75	-3.62	118.95	105.5
Grasim	2200	-0.57	2240	2052
UltraTech Cement	870.15	-2.35	909	852
India Cements	173.9	-2.88	182.5	165.9