Supply-side pressures will remain all through this year too

Supply-side pressures will remain all through this year too

H M Bangur, Managing Director, Shree Cement.
Infrastructure and housing are key drivers of cement market demand in India. A stable government will be expected to implement policies that boost both these sectors and help improve the prospects of the Indian cement industry which currently is going through a rough phase, says H M Bangur, Managing Director, Shree Cement. Excerpts from the interview.

Which sectors are expected to drive cement demand in 2014?
The infrastructure sector is expected to give the major boost to cement demand in 2014. With the new government coming in, it is expected that a renewed push will be given to stalled projects, and new projects will be initiated. All of this should auger well for cement demand.

If the interest rate cycle goes on a downturn next year, as we hope it will, with moderation in inflation going forward, housing demand should also revive across cities. Rural housing demand should remain good considering the expectation of a healthy agricultural growth this year.

Commercial real estate will start contributing majorly only when India´s GDP growth, especially the service sector, revives from the current low levels.

What is the demand-supply scenario likely to be in 2014?
Cement being a commodity business, with multiple demand drivers, predicting demand is a tricky affair. However, given the low demand seen in the current year, it should only improve or at worst remain the same.Supply- side pressures will remain all through this year, too as new capacity continues to come up irrespective of the slowdown. On the whole, supply is expected to continue to outstrip the demand in 2014, too.

What is your estimate on cement prices in 2014?
Cement realisations have been very low last year and unless any major boost in demand is seen, the prices may remain subdued in 2014 as well. Cement pricing is driven by market demand, very little can be said about its behaviour.

Are you planning capacity addition, more capacity utilisation or consolidation?
Shree Cement is moving forward to attain its target, 25 million tonnes capacity by 2015. This should be viewed in the backdrop of our current cement capacity of 13.5 million tonnes. Capacity expansion projects are currently under way by way of brownfield expansion at Ras (Rajasthan) and greenfield expansion at Balodabazar (Chhattisgarh) and Aurangabad (Bihar). An additional greenfield grinding capacity is being planned in north India to meet the target of 2015.

What changes in market trends do you foresee after elections?
Infrastructure and housing are key drivers of cement market demand in India. A stable government will be expected to implement policies that boost both these sectors and help improve the prospects of the Indian cement industry which is currently going through a rough phase.

What will our export /import scenario look like in 2014 with regard to cement and raw materials used in cement?
Cement being a bulky commodity, it is not suited for any substantial export/import. So there won´t be any substantial export-import of cement in 2014 as well. The same is true for cement raw material like limestone, fly-ash, etc. Some import of gypsum does take place; in terms of fuel, there is huge reliance on imports as government has not awarded any new linkage to the cement sector since 2007. So unless the government offers the much deserved domestic coal linkage/or reserving of coal blocks to the cement sector, the import of coal will continue in 2014.

What policy initiatives do you expect from the government?
To boost cement demand, and thus boost infrastructure development, the government could take some quick initiatives like:

Increasing the housing related tax incentive (interest and principal deduction for income tax purpose) limit for individuals.

Directing various state/central authorities to develop cement concrete roads which not only have an advantage over the life of the road but also on the current costs of construction. Cement plants have been always environment-friendly since they absorb the fly-ash generated by thermal power plants as its raw material. However, instead of supplying their hazardous waste free of cost to cement plants, power plants have started charging for it. The government needs to ensure that the principal of´polluter pays´ is enforced and stop power plants from charging cement plants.

Ensuring that transporting of clinker in case of split-grinding units is of a permanent nature with fixed origin and destination points. To facilitate this, the railways should enter into long- term contracts at concessional rates to ensure efficient transport of such bulk products.

Cement production being power intensive, most plants have captive power plants. The government needs to support the sector by giving equal priority in grant of coal linkage and reserving suitable captive blocks vis-a-vis other sectors.

What is your take on the tax structure?
With an overall rate of tax on cement at 30 per cent, cement is a heavily taxed sector in India. This keeps the consumer prices for cement high. Also, excise duty on cement is currently being levied at mixed rates i.e, ad valorem (on transaction value) plus specific (specific rate to be charged on the basis of MRP).

Rationalisation of duty and some form of interest subvention will not only facilitate additional capacity addition but also make cement even more competitive and cost -effective.

With the new government coming in, it is expected that a renewed push will be given to stalled projects, and new projects will be initiated.

Unless the government offers the much deserved domestic coal linkage/or reserving of coal blocks to the cement sector, the import of coal will continue in 2014.

Shree believes in sustainability

  • Shree has been a forerunner in adopting the sustainability paradigm. A reflection of the fact is that the company pursues a holistic growth agenda with emphasis on three measures, or bottom lines, of corporate performance û economic, social and environmental. Shree was the first Indian and the third Asian cement company to join the Cement Sustainability Initiative (CSI) of the World Business Council for Sustainable Development, Switzerland.
  • As a member of CSI, the Company is committed to pulling down its energy footprint, implementing best practices and sharing its knowledge with other members. The Company has also joined the league of seven nations, viz., the Asia Pacific Partnership on Clean Development and Climate Change comprising of the USA, Australia, China, Korea, Japan, Canada and India.
  • Some of our initiatives taken up by company included setting up of green power plants, manufacturing of synthetic gypsum and use of Air Cooled Condensers (ACCs) showing the company´s commitment towards this drive for sustainability.

Climate Disclosure Leadership Index (CDLI)

  • Indian companies are showing increasing confidence in disclosing their GHG emission, targets and commitments in regard to climate change actions. In this regard, CDP (Carbon Disclosure Project) along with Accenture India û the official writer of the 2013 CDP India 200 Climate Change Report - have released their report on 2013 at BSE. Shree Cement has been ranked number one in Material Sector Leaders and number 3 in India 2013 Leaders
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