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Cement: Builders mull joint strategy, imports

Our Bureau

THE builders lobby has decided to take up the issue of spiralling cement prices with the Centre.

Representing the industry, the Maharashtra Chamber of Housing Industry (MCHI) has decided to meet the Ministers of Finance, Industry and Commerce to protest against the alleged artificial scarcity and increase in cement prices.

The MCHI, which had in December threatened to stop cement purchases and construction work, is to meet again on January 5 to review its action plan. The decision comes close on the heels of a price hike by manufacturers in Mumbai with effect from January 2.

Mr Rajini Ajmera, President of MCHI, told Business Line that the cement manufacturers' decision to regulate supply would lead to a further rise in prices. ``We are reasonably sure that the prices could cross Rs 200 per bag'', Mr Ajmera added.

While there was talk among the construction industry that the Government should invoke the MRTPC (Monopolies and Restrictive Trade Practices Commission) proviso, they are yet to put it in writing.

Mr Niranjan Hiranandani, Vice-President of MCHI, said that the issue could be resolved amicably if the manufacturers and users come together on a common platform.

``Ultimately, ours is a long-term relationship. Why then should we not meet and thrash out the issue. Why are the manufacturers using a consortium approach'', he asked.

According to Mr Vimal Shah, spokesperson for the Builders Association of India (BAI), the Friday's meeting is to help them finalise the modalities of their action plan.

``The meeting will see chapter members from all over India -- 83 centres -- come together to ratify the proposal to stop cement purchases. Given the geographical peculiarities of each region, the meeting is essential to reach a consensus on the deadline' ', Mr Shah said.

While the meeting will help decide on the deadline from when the builders' association proposes to implement its action plan, the MCHI, on its part, is to hold a special EGM on January 12 to obtain total approval.

Meanwhile, on the bourses, share prices of cement companies have been going up in recent times. But the upswing appears to have entered a corrective phase.

``While the hike in cement prices may mean improved shareholder value due to improved share price movement, in the long term, such cartelisation is an unhealthy trend'', a leading broker said.

On the Bombay Stock Exchange (BSE), Gujarat Ambuja ended the day at Rs 158.60 (Rs 165.80), ACC at Rs 163.20 (Rs 165.50) and Grasim at Rs 289.40 (Rs 302.25).

Meanwhile, in Kolkata, the City Developers Forum (CDF), the premier real estate developers' organisation comprising 44 members, has criticised the cement manufacturing companies for the price hike. Some leading members of CDF are also considering importi ng cement to negate the impact of the increase.

Currently, portland cement imports are charged 35 per cent basic customs duty, a 3.5 per cent surcharge on the basic and another Rs 350 per tonne of countervailing duty. Effectively, it comes to around 39 per cent. It is higher for the other qualities of cement. The WTO's bound rate for cement is 40 per cent.

Import of cement is being considered by the builders who say that bulk buying by them -- about 50,000 bags at a time -- should enable them to get cement at about Rs 140 a bag, including import duties. Domestic prices are currently ruling at Rs 150-160 a bag.

``We are working out the effective price of imports and if it is feasible, we will import cement but it would be a temporary solution as we do not want to put pressure on the nation's forex reserves. Moreover, international cement prices are lower than o urs and the quality is better. Most of our members are also exporters of certain items; hence, we will get export benefit such as the duty entitlement passbook (DEPB) scheme to avoid customs duty'', Mr Dileep Singh Mehta, Vice-President of CDF, explaine d.

The price increase, however, has not impacted on cement offtake in the eastern region. Top executives of Gujarat Ambuja Cement and ACC confirmed that their sales had not been affected. The CDF office-bearers felt construction contracts being time-bound, developers had no other way but to accept the hike. ``The price of real estate would also rise as cement constitutes about 15 per cent of the project cost'', he said.

Mr R. Partha Sarathy, Secretary-General of Cement Manufacturers' Association (CMA), explained the rationale behind the recent price rise by stating that 18 cement companies were registering losses for the last three years and about 12 of them are being r eferred to BIFR. ``This is a fair hike and it is needed for the industry'', he said.

Mr Mehta also said that some city-based cement dealers were willing to sell imported cement. However, imported cement, when traded in the domestic market, would attract sales tax. ``Still, we feel it would be attractive'', he added.

But not everyone agrees that slowing down construction activity is the solution. The move by the Builders' Association of India to stop construction work, or even slow it down, would be more like cutting off the nose to spite the face, said Mr M.R. Jaish ankar, Managing Director of the Brigade Group: ``It would be better to enter into discussions with the cement manufacturers to get them to continue production and restore the prices''.