Cement sector is witnessing fall in profits, despite impressive growth in demand. Retail cement prices have tumbled down from Rs 262 per 50 kg bag to Rs 240 in January 2010 in Mumbai. The prices are weaker still in Southern region in general, and Andhra Pradesh in particular.
This is despite strong demand growth in India, which has lead to impressive 11.0 per cent rise in All India Cement production to 150.125 million tonnes in April-December 2009, compared to 6.6 per cent growth recorded at 135.21 million tonnes in April-December 2008. While cement demand is strong, the capacity additions have accelerated at a faster pace, leading to over supply.
Grasim Industries indicated that India's cement demand is expected to grow by over 10 per cent, thanks to robust growth in Indian economy and also due to the government initiatives to boost rural development, infrastructure and housing.
It also indicated that the cement prices were impacted due to excess capacity, and the impact was more pronounced in South. Despite expecting double-digit growth in demand, Grasim Industries said that the emerging surplus scenario is expected to last for next 18 to 24 months.
Cement Manufacturers Association, the apex body of cement manufacturers in India, has sought 55 per cent abatement in excise duty to the cement industry, while it has requested uniform rate of excise duty levied on cement. CMA has claimed that the cement is the most essential infrastructure input, but the tax on cement is the highest among the items required for building infrastructure.
The total government levies and taxes on cement constitute 60 per cent or more of the ex-factory price. The levies and taxes on cement in India are also far higher compared to those in countries of the Asia Pacific Region.
The CMA also wants the import duty on coal, pet coke and gypsum be abolished to be in line with the established principle that Import Duty on Inputs should not be higher than on the finished product.
