Can Pakistani imports solve India’s supply problems?

Can Pakistani imports solve India’s supply problems?
30 April 2007

Cement is an important ingredient of the construction sector. With the country in the midst of an infrastructure boom, including the real estate sector, the demand for cement has grown manifolds. The government has done away with the countervailing duty of 16 per cent and additional duty of four per cent on cement imports on its part. The import cut means that the landed cost of imported cement should now fall by about Rs 30 to around Rs 215 per 50-kg bag, much lower than the overall national average domestic retail prices of around Rs 225 a bag.

Pakistan has already shipped some quantity of cement to India. The cement cargo has arrived in Indian port at Rs 155 a bag, which is at a discount. It will be released after certification from Bureau of Indian Standards.

With the production in Islamabad likely to result in a surplus of 7Mt by the end of current fiscal June 2007, followed by another 12Mt surplus production during next fiscal 2007-08, real estate buyers can only hope that the prices would fall.

Raman Sood, director of Eros group says imported cement will reduce construction costs, albeit marginally, as other overheads continue to rise. However, the effect of such imports will be noticeable only during the end of this year.

Added to the surplus production, the current ex-factory production cost in Pakistan is in the range of Rs 114 to Rs 155. In comparison, the cement supply prices in India (Rs 200, ex-factory) are constrained of logistics and plant locations. The retail price increases exorbitantly and consistently, from region to region, ranging from Rs 225 to Rs 240 per bag.

Indian Cement Manufacturers Association secretary E.N. Murthy says: “It is too early to assess the possible impact of government’s decision to allow duty free import of cement and the price of cement will be dictated by the

market forces.

He says the government decision has removed “level playing ground” as domestic production attracts anywhere between Rs 400 and Rs 600/t as excise duty whereas imported cements do not. Murthy says instead of helping the domestic industries to further augment the production capacities, the government has resorted to imports.

Assocham has suggested opening up of Wagah Border for import of cement from Pakistan and also authorise internationally recognised quality certifying agencies to issue certificate to facilitate flow of import. The chamber says Pakistani cement companies have confirmed availability of 10,000 tonnes of cement at Rs155 per bag of 50 kg to deliver at Jalandhar (Punjab).

According to data provided by Cement Manufacturers Association (CMA), the demand for cement in south India grew by 12 per cent, in north it was 11 per cent and the west registered 10 per cent increased offtake.

The industry estimates that the demand growth for the current fiscal is expected to be in the region of 10 per cent, which will translate into a demand of 175Mt However, there is no sign of significant capacity build up happening this year. All expansions that are planned are for a three-year period. After a gap of almost 10 years, Indian cement companies are into shopping mode, by placing orders for capacity build up. Close to 54Mt of additional capacity is on cards, which translates into an investment of around Rs 21,600 crore.

According to reports, 37Mt of clinker capacity is likely to be added from 2007 to 2010. In terms of cement capacity it will be 54Mt Analysts said unless imported in large numbers the cement price will not be impacted because the incremental demand alone in India is 9Mt that is 2Mt more than the total excess capacity in Pakistan.

The far cheaper road route is the key to larger imports. If that is allowed, the game changes significantly in North India, analysts say. Many Pakistani cement manufacturers are currently awaiting a green signal from both – Pakistan and Indian governments – to supply the building material via the regional road network.

Published under Cement News