Even though exports constitute only 4% of the total cement production in the country, analysts believe that a ban on cement exports will adversely effect the demand-supply condition in the western region and hurt the bottomline of companies whose plants are predominantly situated in the west.
The spectre of a ban on cement exports has been raised by industry and commerce minister Kamal Nath who on Wednesday said this was one of the options the goverment may consider to bring down cement prices.
Analysts point out that the the impact on the retail prices would be region-specific. "Most of the cement exporting plants are based in western india and so once there is a ban on export, supply will outstrip demand in this region. The prices may fall between Rs 17 and 19 per 50kg bag," says Rupesh Sankhe, an analyst with ICICI Brokerage. Cement prices in Mumbai at present are hovering above Rs 250 per 50kg bag.
A ban on export will most likely hit the bottomlines of major cement exporters - Ultratech and Gujarat Ambuja Cement.
The shares of the two cement majors, however, closed higher on Thursday. Gujarat Ambuja closed at Rs 112.90 up from the previous close of Rs 104.15 and Ultratech closed at Rs 818.45, up from 793.15 on Wednesday. India exported 5.02Mt of a total of 142Mt of cement produced in the country in the year 2005-06.
The export increased to 5.08Mt in the year 2006-07 (April-Jan), on the back of increased construction activity in the Middle-East. The total production for this period was 127Mt.
Manufacturers are naturally miffed at the government’s talk of banning export. "It would create doubt about the viability of investing in newer capacities. Some potential investors may shy way. In the near tern supply may increase, but in the long term it would decrease," says a manufacturer with major expansion plans.
Cement Manufacturers’ Association (CMA) Secretary General E N Murthy says, "Banning export is no solution. Effort should be made to increase capacity." Cement manufacturers are holding a meeting on Friday in Delhi, where they would discuss proposals to end the stand-off with the government over price hike. They are also likely to meet high government officials with their proposal.
Pressure, however, is mounting on cement makers. And it’s a battle being fought in full media glare, with government trying to portray itself as the crusader against inflation, while manufacturers trying hard to protect their turf. Following their meeting with the finance minister on Tuesday, CMA president Manoj Gaur had said that manufacturers would try and find ways to cut prices.