Indian cement - impact on removal of CVD and SAD

The Government’s latest move to scrap CVD and additional SAD is expected to dent cement manufacturers’ pricing power.

The Government’s latest move to scrap CVD and additional SAD is expected to dent cement manufacturers’ pricing power. Government has been taking series of measures to make cement cheaper in the country from January, like removal of customs duty on Portland cement, bringing dual excise duty structure and asking the cement manufacturers to reduce prices. The cement producers have agreed to keep the prices at the current level for one year irrespective of increase in costs. 

At present, cement prices in the country are below import parity price. The cement price is lesser by Rs10-20 depending on various regions and nearness to ports. We expect the removal of CVD and SAD on imports to make cement cheaper theoretically at least by Rs10-20 depending on the location. There are practical difficulties like lack of port facilities and storage facilities with consumers. But more than the practicalities the message is clear that the Government’s sole action is to bring down cement prices. 

It was expected that there will be no more measures with the Cement manufacturers and the Government agreeing to keep cement prices stable for one year. The current measure suggests that things are not settled for cement industry as yet. Government is taking various measures to bring down inflation and cement has become high focus area. 

The series of measures taken by the Government to curb the pricing power of cement producers will be taken very negatively by the market and sentiments, which are already low, are expected to be shattered. The massive capex plans of cement companies may be difficult to fund if cement prices come down. To maintain the capex schedule, companies may be required to go for higher debt. With interest rates already firming up, we expect this to affect the profitability of cement companies, reports India Infoline. 

                    Prior to removal of CVD & SAD       Post removal

Price (FOB)                         50                      50

Freight & Insurance                 25                      25

Re/US$                              43.5                    43.5

Price in INR                        3263                    3263

Import Duty                         NIL                     NIL

CVD                                 618                     NIL

Landed Price                        3881                    3263

Sales Tax                           4366                    3670

Port-handling and inland freight    300                     300

Dealers commission, octroi etc.     300                     300

Retail price                        4966                    4270

Price per bag                       248                     214

Average current cement price in the country                 222