Past week we saw zigzag price movement of cement stocks. Previous week, all cement stocks were appreciated by at least 10%. Then the news of abolition of customs duty on Portland cement came. Prices of cement stocks did a somersault. What is the near term prospect of this important sector?
Niraj Shah , a renowned stock analysts’s views are published here.
‘Import duty on cement, standing at 12.5%, has been completely removed. The duty cut, barely a month prior to the budget is apparently meant to control inflation and may be interpreted as a signal to domestic cement industry to not hike prices in the near future - particularly with elections in UP round the corner.
Cement prices, almost across the country, and particularly in South India, have risen considerably in the last 20 days, from around Rs 175/bag to Rs 190/bag in South India and it was believed that these would still continue to inch up even for the forseeable future. Prices for superior brands are ofcourse higher than these average prices across South India.
On very basic calculations, prices of imported cement, after factoring in import-duty cut, stand at Rs 240/bag in Hyderabad, Rs 212/bag in Chennai and Calcutta, and around Rs 230/bag in Bangalore. These prices are still higher than the prevailing cement prices in the regoin.
Thus, the landed cost of imported cement, even after factoring in the removal of duty, still stays marginally higher than the prevailing cement prices.Hence, what this ruling effectively does is that the possible and the widely factored in future price-hikes may not come into effect.
With the import duty removed, the possibility of these price hikes, especially in the near future, seems very remote.What will however not happen is price cuts-certain market analysts had given calls of price-cuts coming in the cement sector, which does not seem to be the case.
Also, the logistical problems that would be faced as a result of cement imports may make these imports unviable.
However, the market sentiment is likely to remain subdued. This was amply demonstrated by the stock price movement of Grasim, which, even on the back of stellar Q3FY07 results, could not hold in the green and in fact, ended the day with losses of over 3% on the BSE. All the other cement stocks also followed suit, with industry leaders like ACC and Guj Ambuja falling over 7% in the days trade.”
Import duty on cement at 12.5% has been completely removed. The landed cost of imported cement, even after factoring in the removal of duty, still stays marginally higher than the prevailing cement prices
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