Cement cos unfazed by duty cut

MUMBAI: The stock markets reacted with alacrity to import duty cuts by dumping cement stocks, but the industry is reasonably confident that imports are unlikely and they still wield the pricing power.

Some steel makers also felt the impact in the markets, as the government reduced duties on stainless steel, even as it gave sops on zinc and refractories.

“Cement, as a commodity, has never been imported into the country, even during acute shortages,” an industry official representing an MNC cement maker said.

“High shipping freight rates and the fact that cement has a short shelf-life will go against importing cement in huge quantities,” the official added.

Back-of-the-envelope calculations reveal that importing cement from Indonesia will cost $40 per tonne and ferrying it to local shores would add another $28-30 per tonne to the landed cost, which makes it approximately Rs 200 per 50 kg. The cost of local cement in the city is about Rs 220 per kg. An analyst at Edelweiss Capital opined that cement accounts for 6% of the construction costs.

“In the past, import duty cuts have not resulted in any import of cement,” the Edelweiss analyst added.

D D Rathi, director and CFO of Grasim, was guarded. “It’s too early to say whether import duty cuts would impact the industry,” Rathi said.

“The cut may see a marginal realignment in the coastal towns,” Rathi says, provided there are good port-handling facilities. As for Grasim, there is very little negative impact as the majority of its sales accrue from the hinterland and not from coastal towns, he said.

However, there is a lurking suspicion in the markets that the government may use its might to get cement producers to lower prices. This may be the first step.

“There is a fear that the government is putting pressure on companies to rein in prices” says Avinash Gorakshakar, head of research, Emkay Shares, Private Client Group, explaining why cement stocks fell sharply in the bourses.