Cement Sector

Is Government trying to regulate the cost of Cement to lower the infrastructure cost

Government is in dual mode of increasing excise duty and making sure cement cost is locked for year time.
Raising the excise duty and expecting the cement industry to not raise prices will give governement additional money. The rise in cement prices is transferred to higher real estate costs, which are already sky high in India. This way, the FM is trying to make money from a flourishing industry without giving them the incentive to raise money and indirectly curbing inflation.

This dual Excise structure is absurd and impractical. In fact I firmly believe that the FM was merely trying to increase excise duty rates on Cement. He has managed to paint it as an exercise in price control. A shrewd way of raising the excise and not being blamed for the price rise.
Prices of all commodities have sky rocketed but cement seems to be drawing most of the flak. It is probably true that the cement companies are minting money but it is also true that they were bleeding no more than 3 years ago. In fact times were so bad that many units especially the mini cement plants had shut down.

Also is rising cost of cement really the reason behind higher cement costs? Typically cement is less that 5% of the sale price for buildings if it is sold for about Rs 2000/sq feet. Thus a 100% increase in cement prices should only have a 5% impact. Housing prices have risen 20-80% over the last two years in most part of the country.

What is the basis of arriving at the figure of 190 per bag. It is silly. It is also detrimental to the Cement Industry and will act as a disincentive for capacity creation.
One factor to consider that despite custom duties being slashed to 0% landed costs of imported cement is still higher than locally available cement. This despite fact that local companies are paying excise. If the government is really serious about reducing prices it should cut excise and not raise it.
Like all commodities the prices will be cyclic let the cement companies enjoy the good times because as sure as night follows day capacities will be built and prices will crash.


Reason for Rise in Cement Price and Government Policies

A slowdown in production and a growing demand are the possible reasons behind the rise in cement prices and Finance Minister and Commerce Minister has come up with a prescription of putting a cap on cement prices!!!

Here’s what the governemnt has to say -

Supply side constraints continued to affect the cement industry, leading to slowdown in the growth in production of the crucial construction material in the first ten months of this fiscal.
According to official figures released today, cement production grew by 9.5 per cent at 131.88 million tonnes during April-January 2006-07, against 11.4 per cent a year ago.
Production growth in cement slowed down by more than half to 6.8 per cent in January against 15.4 per cent in the same month last year.

In absolute terms, cement production stood at 14.5 million tonnes in January 2007 against 13.57 million tonnes in January 2006 and 11.76 million tonnes in January 2005.
This fiscal, cement production growth slowed down in five of the ten months, figures of which are available. Besides January, growth in cement production was lower in May, June, August and December.

Particularly in the month of August, cement production slowed to a mere 2.3 per cent against 19.3 per cent a year-ago because of the monsoon.

What is the long term outlook for Cement Stock

Cement Stock is on Bullish run from long time. If your Portfolio already have Cement stocks then wait for 4 to 5 months more before encashing them. Please do not buy any new stocks at this level. For short term investment, buy when Market will show correction after Diwali.