| Bad Times ahead for Cement |
Next comes the rise in power cost. The per tonne power cost is estimated to rise by Rs.50 per tonne, which works out to be a rise by Rs.2.50 per bag of cement. The power cost rise is mainly due to cost of furnace oil and LSHS (which comes under import price parity structure) used for generating power, which has increased from Rs 6,600 per kilo liter (KL) to Rs 9,000 per KL.
This increase in cost will have more of an impact on those companies, whose place of manufacture is far from the actual place of sale. Like for example, companies producing in one state and trying to sell in another. Companies like Gujarat Ambuja, Madras Cements, India Cements, having a local presence, are expected to get less affected.
That's about the bottomline of the players. But the scene at the stock market seems to be no different. Cement stocks have been gloomy for quite sometime now. The downslide in cement stocks had started even before the crash of the stock market in September. Post-crash, the situation only became worse. Take for example ACC. From its 52-week high of Rs.303/-, the share quoted at Rs.92/- on 09th October, which is its 52-week low. Similarly, GACL quoted at Rs.152/- on the same day, as compared to its 52-week high of Rs.420/-.
With the market moods unpredictable, and the scenario of increasing costs, there can be little scope of revival of the cement stocks. Leaving aside these two factors and considering the demand-supply scenario, the forecast can be no different. The dispatches during the five-month period of April-August 2000 were 39 million tonnes, a growth of just 4 percent as against the annual industry growth rate of about 8 percent. During the same period last year, the dispatched were 38.5 million tonnes.
Adding to the list of woes is the problem of increasing cement capacities. The industry already faces the problem of underutilisation of capacity. Moreover, there are many companies which have taken up expansion programs. This is expected to increase the industry capacity by nearly 10 percent in the next one year. Of this, 7 million tonnes expansion is in Southern India. Once the capacity installations are through, if the demand does not increase proportionately, it will have a adverse impact on the industry.
That's not all. The wage bill of the cement industry is expected to increase by Rs.500 crore over the next four years as a result of the bilateral settlement reached between the Cement Manufacturers' Association (CMA) and labour unions recently. As per the agreement applicable to 1.35 lakh workmen employed in cement factories, mines and quarries, the per month wage will increase by Rs.1000/-, for a period of four years (April 1, 2000 to March 31, 2004). On one hand, the manufacturers will face a problem of generating funds to be distributed as wages and on the other hand, the wage input cost will rise annually for a period of four years. This may sum up to Rs.5/- to Rs.10/- per year per tonne of production.
Another issue is the increase in mining royalty for limestone with effect from September 19, 2000. This has increased from Rs. 32/- per tonne to Rs 40 per tonne, which adds up to an increase of Rs 12 per tonne of cement in the input cost.
All these factors are expected to increase the per tonne input costs of cement manufacturing by nearly Rs.80/- a tonne. But the manufacturers are clear about one thing - they are going to pass on these costs to the consumers. That means there is likely to be a substantial rise in the per bag retail price of cement. What kind of impact this will have on the demand for cement is hard to say since cement as such has no direct substitute. The manufacturers are optimistic that they will soon sail through this crisis smoothly.
Tanuja R Nemivant