Budget 2018: The cement industry is witnessing slow uptake in demand and badly needs a booster from the Modi government in the upcoming Union Budget 2018. “Since 2007-08 import of cement into India is freely allowed without having to pay basic customs duty whereas all the major inputs for manufacturing cement such as Limestone, Gypsum, Coal, Pet coke, Packing Bags etc. attract customs duty,” FICCI says. “Presently due to low demand of cement in the country more than 116 million tons of domestic cement capacity is lying idle and duty free import of cement causes further undue hardship to the Indian cement industry already reeling under low capacity utilization,” the industry body says.
The FICCI has pitched for providing a level-playing field. The industry has recommended that basic customs duty be levied on cement imports into India. “Alternatively, Import duties on goods – Coal, petcoke, Tyre Chips, Limestone, Packing Materials and Bags, Gypsum, and Refractories etc. – required for manufacture of cement be abolished and freely allowed without levy of duty,” FICCI says.
In October 2017, retail cement prices jumped by Rs 12 per bag in the second quarter of this fiscal, with a sharp rise of Rs 36 in west and Rs 15 in south on a year-on-year basis, owing to rising production costs, accoridng to a report said. Cement companies will continue to bear the brunt of higher pet-coke prices that increased 13 per cent q-o-q to $96 per tonne in Q1 FY18, Kotak Institutional Equities Research Analyst Murtuza Arsiwalla said in the report.
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The profitability of cement companies too is expected to decline 3 per cent y-o-y to Rs 828 per tonne as the burden of higher production costs outweighs the benefit of a modest price increase, Arsiwalla added. All-India retail cement prices declined by Rs 8 per bag on a quarterly basis in Q2 FY18 due to seasonal weakness seen during the time of the year.
The prices declined across regions, with the highest decline in north and central by Rs 14 per bag. Cement prices in the south declined by Rs 7, while west and east regions saw prices declining by Rs 3-5 per bag on a q-o-q basis, the report said. A part of the decline may be attributable to reduction in prices on account of GST benefits in select states. A modest price increase and healthy volume growth, although dented by higher production costs, will likely underpin Q2 earnings, the report said.
More importantly, the first quarter under GST could yield surprises on realisations as well as benefits from input cost credits, it had said. The cement industry is likely to register 6 per cent y-o-y growth in Q2 FY18. Potential re-stocking of inventories may have helped volumes even as volume trends in the recent past have borne the brunt of GST rollout, demonetisation, and introduction of RERA, the report had said.