Cement prices market driven: India Cements

The cement space has not quite recovered after yesterday’s fall, the knee jerk reaction, which followed the customs duty cut.

N Srinivasan, Vice-chairman & Managing Director of India Cements says that the custom duty cuts led to an over reaction as in the past few years cement was available at unremunerative prices from the producers' point of view. So now, he feels that the prices are in line with the investmet levels required.   

Srinivasan adds that the prices of cement are market driven. He feels that it is possible for the cement prices to rise and there is still headroom for cement in India.

Excerpts from CNBC-TV18's exclusive interview with N Srinivasan:

Q: Could you first tell us whether there will be any material impact on your company or on the sector as you see it because of these custom duty cuts?

A: There is an over reaction because first, I think this custom duty cut will clearly indicate that we are not overpriced as far as cement is concerned in terms of price of cement because in the last five to six years, cement has been made available at unremunerative prices from the producers' point of view because of the market dynamics.

So now we are seeing prices that are in line with the kind of investments required to add capacity. But prices of cement around the world are such that I think prices in India are quite competitive which will be demonstrated; so I don’t think there will be any great impact arising out of it.

Q: Will it restrict your ability to raise prices domestically given that the government seems to be focusing on getting prices down?

A: Prices of cement are market driven today. It is not a question of my increasing the price. The demand-supply equation determines the prices of cement. But if the question is, would it be possible for cement prices to rise, I would like to anwer in the affirmative because you would find that given international FOB prices of cement around the world and if you take the landed cost, etc, there is still headroom for cement prices in India.

Q: How much would that gap be if you had to break it down to a per bag basis between imported cement and the prices at which domestic cement makers are selling right now?

A: First, you have to understand that India consumes 150-160 million tonnes of cement now. After China we are the second-largest in the whole world. We are talking about what is the kind of import that is likely to take place even supposing, somebody wanted to import for himself. We are not talking of millions of tonnes and as such the industry is set to expand to about 250 million tonnes in three to four years. So we are talking of a miniscule kind of an import that is likely to take place if at all but not at today’s price.

Even if prices are a little bit more I don’t see any import coming in, but if somebody wants to, that is his pleasure because even if prices were to go up in India, if somebody wants to import there is no duty, it is a fair situation. So I don’t see any problem for the cement industry and it will demonstrate once and for all that our prices are competitive even if the prices were to go up from today’s levels.

Q: As someone who is watching the industry, it has been a series of moves. First, the government was unhappy about the price hikes and now there has been a customs duty cut. Do you think there is a warning there even if it is covert?
 
A: Cement as it is made available today to the consumer there is a substantial amount of taxes in it. The direct and indirect taxes today add up to about Rs 50 a bag, which is quite substantial considering the final product price. If the government feels that the price of cement today is high, they will soon understand that it is not so because they have now reduced the import duty to zero; you will find that the price is quite competitive on an international basis.