Close to a month after the government announced its stimulus package to boost the demand for cement, industry players feel the measures have only given a sentimental boost to the industry, with no material impact. Measures like 100% lifting of export ban, 4% excise duty cut, diesel price cuts which should have led to drop in freight rates but did not, and sops to housing, failed to pep up the sagging fortunes of the industry. Most of these were offset by measures taken by the government earlier this year to rein in inflation and prices.

Taking into consideration the rising mismatch between demand and supply, the government had, during the year, imposed a ban on cement exports, allowed import of cement without any countervailing duty on it and hiked the fuel prices as a measure to curb inflation.

The 206.46 million tonne cement industry, which was growing at 10-12% in the beginning of FY09, got badly hit during the year. Despite lifting the ban on cement after 6 weeks and allowing cement exports via Gujarat ports, players witnessed drop in exports and many lost clients to Pakistan cement.

Cement exports in the current year declined 33% to 1.44 million tonne from April to October 2008 against 2.15 million tonne in the same period last year. Last year (FY2008), cement exports were 3.3 million tonne and clinker exports were about 2.1 million tonne.

Transportation cost increased and moreover, when significant raw-material pressures had build up in the last one year, the government had kept a control on cement prices in its bid to check India?s multiyear high inflation. Hence the margins dragged further as the players were not able to pass on the incremental cost.

HM Bangur, CMD of Shree Cement says, ?Today the capacity utilisation of the cement industry has dipped, stocks are building up and import of cement is allowed at zero counter veiling duty (CVD). The industry which used to run at 95-98% of its capacity is now running at 82% capacity. 15-16% of the units have to be kept closed.?

Meanwhile, cement stocks have significantly underperformed in the broader markets. Cement majors like ACC, Ambuja, Grasim, UltraTech have underperformed the sensex in the range of 12-16%. Most of the stocks are currently trading at their 52 weeks low. ?There is a visible slowdown in the real estate and infrastructure sector on account of the current crisis. This has resulted in a slackening of demand. The situation is further aggravated by continuous reduction in linkage coal availability and no new linkages in operation. All of these pose a challenge to the cement industry,? UltraTech said in a statement during its Q2 results.

The government then on December 5, had cut petrol prices by Rs 5 and diesel prices by Rs 2 with immediate effect, on account of falling crude prices, which according to Assocham, will help inflation to further moderate by 2%. However, the industry did not receive any intimation from the transporters about a cut in the freight rate.

The much-hyped government stimulus package for the cement industry was partly nullified by a one percentage point hike in freight rates affected by the Railways.

According to the Railways notification issued freight rates for cement, coal and coke have been revised to 8% a tonne on reclassification of the products from class 140 to 150. The hike in railways freight rates comes a day after the government announced reduction of central value-added tax by 4 % on all products, except petroleum products. This diluted the excise relief for cement companies.

Going ahead industry expects the demand to moderate to 8% and production to grow at a higher pace due to capacity addition of almost 69 million tonne over the next 2 years.

?This has been a challenging year for us but the coming year will be more difficult as capacity utilisation will drop further,? Bangur adds.