Govt moves fail to check cement price rise

In January 2007, when Sanjay Singh, a fruit merchant, began constructing his house in the suburbs of Delhi, he had bought cement at Rs 215 per 50 kg bag. By March, he discovered that he had to shell out Rs 10 more for the same 50 kg bag of cement.

The five per cent increase in cement prices in less than three months happened in spite of as many as four attempts by the government since January to rein in the prices.

In January, the government abolished the 12.5 per cent customs duty on cement imports. But no imports took place as international prices ruled high, thereby not impacting domestic prices.

Finance Minister P Chidambaram, who was under pressure to tame inflation, announced in his 2007-08 budget on February 29 that a dual excise duty structure would be in place for cement producers.

The budget reduced the duty on cement from Rs 400 per tonne to Rs 350 per tonne if it was sold at a price not exceeding Rs 190 per 50 kg bag. However, cement selling at prices above this mark were subjected to a duty of Rs 600 per tonne. But companies hiked prices by Rs 10-12 per 50 kg bag to pass on additional excise burden.

In March, the government coaxed the industry to freeze prices for another year. The latest move that came on April 4 was withdrawal of the counterveiling duty (CVD) on cement to pressure domestic producers into cutting prices. However, industry watchers see no possibility of any decline in prices.

"Some of the bulk users have got samples from Pakistan that is waiting quality approval. While some imports will be possible at lower rates (Rs 190-210 a 50 kg bag versus domestic price of Rs 230-235), the demand-supply gap will prevail. Thus, chances of cut in domestic prices will be limited," said Sanjay Ladiwala, president, Bombay Cement Stockists & Dealers Association.

"As much as 150 million tonne cement is consumed in the country and import of a few hundred or thousand tonne cannot impact prices," said an industry source.

Moreover, while imported prices may be lower, the facilities for handling and warehousing of a bulk commodity like cement are inadequate at ports. The domestic industry is also sceptical about the quality of imported cement.

The government fails to assess the demand-supply gap and is bent on forcing a price cut. Demand for cement is growing at 8-9 per cent (in tandem with the GDP growth) and there is little possibility of it slowing down. While the industry has announced capacity addition of about 90 million tonne, most of it will come only in 2009-10 or 2010-11.

Therefore, it will take another couple of years before the demand-supply imbalance is corrected along with prices. Meanwhile, cement exports have more than doubled from about 4 million tonne in 2005-06 to 9.9 million tonne in 2006-07.