Mithun Roy

Mumbai: The cement export ban has finally begun weakening the industry’s growth foundation. Prices have dipped by Rs 6 per bag to Rs 210 in Gujarat. Maharashtra and Andhra Pradesh are expected to feel the pinch by early June. Cement companies, on their part, have decided to freeze prices for the next few months.

The government had, on April 11, banned exports of cement to curb the increase in the price of the construction material. Soaring prices were inflating the cost of housing and infrastructure projects, the government had said.

In its April 17 edition, DNA Money had predicted that prices would cool due to the export ban. Since Gujarat accounts for as much as 90% of India’s cement exports, it has been the first to be affected.

Jaspreet Singh Arora and Manish Valecha, analysts with securities firm AnandRathi, felt that surpluses would flow to neighbouring states like Maharashtra, Rajasthan and Madhya Pradesh.

The three states, along with Gujarat, consumed 45 million tonne of cement between April 2007 and February 2008.

In a note to clients, Credit Suisse analysts Anand Agarwal and Musaed Noorani predicted that impact on prices would be purely regional as 99% of cement exports come from western India.

Meanwhile, India’s leading cement producer ACC has decided to hold its cement prices for the next two-three months. The company has kept its cement output at peak levels and is planning to explore with the government solutions to inflationary trends that have increased input costs.

Last month, ACC managing director Sumit Banerjee told DNA Money that the price of the 50-kg bag was hovering around Rs 220, which was far less than the rate in Pakistan, Bangladesh, Sri Lanka and Nepal. He had also raised concerns over the government’s allegations of cartelisation in the industry.

In December last year, the Monopolies and Restrictive Trade Practices Commission (MRTPC) had found 44 cement companies, including some biggies, guilty of restrictive trade practices and fixing cement prices in concert between February and April 1990.

Banerjee had felt that such allegations and the ban on exports would make new investors shy away from the sector. He had also expressed fears that some new projects would have to be shelved due to liquidity crunch.

Other cement makers too have reasons to worry. According to IFL Research analyst J Radhakrishnan, companies such as Ultratech and Ambuja are more likely to be hurt by the ban as they are among the largest exporters of the commodity.

IIFL Research estimated that overall despatch growth would fall to 7% in FY09.

In the 11 months to February 2008, the industry’s overall despatches grew 7.7% year on year, trailing 9.6% year on year increase in domestic consumption.

This was mainly due to capacity constraints, which caused a 38% year on year fall in exports during this period.

Source : DNA