Cement companies dismiss Tamil Nadu’s nationalization threat
Mint

Several major cement companies, including Madras Cements Ltd, India Cements Ltd, Chettinad Cement Corp. Ltd, Dalmia Cement (Bharat) Ltd and ACC Ltd, have factories in the state

A day after the Tamil Nadu government claimed it will take over private cement factories if they failed to reduce cement prices, industry officials held their ground pointing to demand that was outstripping supply and dismissed the state’s idea of using imports to sell cheaper cement.

After a meeting chaired by Tamil Nadu chief minister M. Karunanidhi on 2 January, the state government threatened to “nationalize” the cement plants and also said it would import 100,000 tonnes of cement through Minerals and Metals Trading Corp. Ltd, the Union government trading company, and sell it below marketprice, which is at Rs230-250 per 50kg bag.
Operating margins of the cement industry have improved from 19% in 2005-05 to 32% so far this fiscal

Prices have risen by about 25% in the past year. Several major cement companies, including Madras Cements Ltd, India Cements Ltd, Chettinad Cement Corp. Ltd, Dalmia Cement (Bharat) Ltd and ACC Ltd, have factories in the state.
“These are just statements for public consumption,” said one industry official who did not want to be named due to the sensitivity of the issue. He added that the state government was issuing “empty threats” and claims that the government cannot do it in an “open business environment”. Questioning the practicality of cement imports by the government, he said that the government has been threatning to do that for the past one year.

Vineet Nigam, a vice-president of Icra Ltd, the ratings firm, says that the threats alone might help reduce prices by Rs2-3 per bag. But, an official from a large cement manufacturer in the state, who spoke to Mint on the condition he wouldn’t be identified, said prices might come down but only over the next one to three years, as additional capacity of around 100mt is expected to be added. “For now, even if we cut prices, dealers won’t, because of the supply-demand mismatch,” he noted.

Import solution: Tamil Nadu chief minister K.Karunanidhi.
He also pointed out that even if the government imported cement, by the time handling, freight and storage charges are included, the prices would come to what are prevailing in the market now for domestic cement. In the first six months of 2007-08, the consumption level in Tamil Nadu has been recorded around 1.2mt per month.

Nigam says India’s cement industry, which was losing money as recently as 2000, has sharply improved its financial health over the last three years. An Icra study shows that operating margins of the Indian cement industry have improved from 19% in 2005-06 to 32% so far this fiscal.

In Thursday’s trading, India Cements fell 2.88% to close at Rs298.15 a share while Chettinad Cement also fell 2.2% to close at Rs474.8 a share. Madras Cement closed 0.76% lower, at Rs4,431 a share on a day when the benchmark Sensex index lost 0.5%.

Cement import to contain prices
Hindu

The Tamil Nadu government’s decision to import one lakh tonnes of cement and distribute it through the Civil Supplies Corporation must be seen as another signal to the Centre that it must intervene and rein in galloping cement prices. On paper, cement imports are allowed and taxes have been lowered. But the procedural obstacles, bureaucratically contrived delays on account of Bureau of Indian Standards (BIS) certification, have thwarted many an attempt to procure cem ent from abroad and contain domestic prices. Six months ago, the Andhra Pradesh Chief Minister wrote to the Prime Minister complaining about the delays built into BIS certification and suggesting alternative quality checks by competent agencies, including public sector undertakings designated by State governments. The reasoning behind this demand was sound but unfortunately New Delhi was unmoved. Through this financial year, cement prices have been climbing steadily, first breaching the Rs.200 per bag level and now ruling at anywhere between Rs.200 and Rs.270, depending on the place. Cement plants in the country are working at 95 per cent capacity (the total capacity is around 160 million tonnes) and expect to build an additional capacity of 13 million tonnes this fiscal year — the highest ever increase since 2001, when they added 16.2 million tonnes. In sum, demand is outstripping supply, cement manufacturers are profiteering from high prices, and imports are deterred by a certification procedure that is, in effect, a non-tariff barrier.

The responses by Tamil Nadu and Andhra Pradesh indicate the frustration of State governments in the face of rising construction costs that hurt ordinary people as well as major government projects and have an inflationary impact. Many mega projects of governments and their agencies, private sector projects, and the housing sector have been subject to a severe cost escalation. Infrastructure projects absorb 40 per cent of the cement produced while the housing sector takes the remaining 60 per cent. Imports are a well-recognised means of containing prices. Countries like Thailand and Pakistan may be ready to export cement but the trade finds the certification procedure a serious deterrent to import. It will be unconscionable and also politically damaging for the Centre to continue to turn a Nelson’s eye to the problems faced by State governments and ordinary consumers as all building costs escalate sharply. The economist Prime Minister needs to intervene urgently to see that the practical restrictions on the import of cement are lifted in the public interest.