Govt curbs on prices may hit cement industry: ACC

"Cement has a limited role in inflation. Prices have moved up by 3-4 per cent in 2007-08 as against a 15-18 per cent cost push on the raw material side. Still, there is an attempt to artificially freeze cement prices and market forces are unable to decide prices. This is not a healthy situation for investments to flourish," Sumit Banerjee, managing director, ACC, said.

According to a PTI report on Tuesday, ACC will increase cement prices after three months. "Showing our concern about rising inflation, we hold the prices for two-three months. But after that period, we are going to increase the prices if the market forces and the government allow us," Banerjee said.

According to the Cement Manufacturers' Association, the cement industry has added 27 million tonnes of new capacity in 2007-08 and is in the process of implementing another 80-90 million tonnes over the next 3-4 years at an investment of about Rs 50,000 crore.

While margins have got squeezed in the previous quarter, they were expected to be under further pressure due to rising cost of inputs such as coal, he said.

Over the last one-and-a-half years, the government has taken several measures to check cement prices and control inflation, the latest being an export ban and a 12 per cent ad valorem duty on cement selling above Rs 250 per 50 kg bag. Last year, the government made cement import duty free. Cement has a weight of 1.73 per cent in the wholesale price index (WPI).

Most companies saw a sharp decline in net profit during the January-March quarter. Ambuja Cements registered a 44 per cent dip in net profit (over 2006-07) while ACC's profit dipped by a marginal 1.65 per cent.

Banerjee told that companies need to earn profits that are enough to invest for materialising the announced capacity additions.

ACC has made announcements to expand its capacity to 30 million tonnes by 2010 from the existing 23 million tonnes.