Higher costs and taxes will slow cement growth

Higher costs and taxes will slow cement growth
Published: 14 August 2006

Increasing power costs, railway tariffs and higher tax incidents coupled with poor coal quality will check  the growth of the cement industry in the year 2006-07, which reported a 10 per cent rise in the corresponding previous year.

A study, undertaken by Assocham on prospects of cement growth in 2006-07,  highlights that electricity and coal account for as much as 60-70 per cent of the manufacturing cost of the domestic cement sector. Of these, electricity alone accounts for 40 per cent of the total manufacturing cost. Shortage of coal is also a major bottleneck faced by the industry, Assocham  President Anil K Agarwal said.

"Although we have 80 billion tonnes of coal reserves, there are certain  bottlenecks in production management, which restrict supply. As per the  projections of the Ministry of Coal, the demand for coal by the cement  industry is projected to be 23.3 MT in FY06 and 25.4 MT in FY07," Mr Agarwal said.

The cement industry, he said, had entered into a fuel supply agreement, with  the coal producers like Coal India (CIL) and Singareni Collieries Co (SCCL),  which expired in November, 2004. As per the agreement, the coal companies  used to cater to 80 per cent of the demand by the cement firms. However, the  cement companies are no more guaranted an assured supply. Import of coal are not yet resorted to in large quantities, owing to lower domestic prices of coal as compared to the import prices.

"Coal is mainly imported from China, South Africa and Indonesia. If we take  the case of import from China for a plant in Tamil Nadu, the price of  domestic coal at pithead stands at only Rs 2,024 per tonne as against the CIF price of imported coal at Rs 3,168 per tonne, lower by 36.11 per cent," he said.

Cement also remains the highest taxed essential infrastructure input in India. High levies and taxes, which account for 80 per cent of the ex-factory price, Assocham President said, is another major concern of the industry. "These levies are very high when compared with 17 countries in the Asia  Pacific Region, where the total average tax on cement is 11.4 per cent, with  the minimum being at 4 per cent and the maximum at 20 per cent. For the Indian cement industry, the excise duty alone works out to over 35  per cent on ex-factory cost, whereas the duty levied on luxury goods is only 24 per cent," he concluded.