Cement Stocks Get A Freight Leg-Up

Share prices of cement companies surged today after the Union railway minister Nitish Kumar said in his budget that a rationalisation of freight rates would result in a reduction in freight charges for cement and steel.

Cement sector blue chip ACC jumped 2.77 per cent to Rs 166.85, Larsen & Toubro up 1.58 per cent at Rs 202.35, Gujarat Ambuja Cements up 4.83 per cent at Rs 238.85 and Grasim Industries was up 1.1 per cent at Rs 301. All these stocks ended higher than the previous day.

The railway minister said while announcing the Railway Budget that the hike in freight rates was not across the board. Some rationalistion of freight rates, including a cut in freight rates for finished steel, pig iron, cement and some petroleum products, has been undertaken.

Freight rates on coal, raw materials used in steel-making and iron ore were raised marginally. The minister said the Railways will mop up an additional Rs 450 crore from freight rationalisation.

For cement and steel -- the two sectors where railway transport is a major cost component -- the reduction in freight rates will be beneficial though the exact amount of reduction in rates is not known. However, steel stocks, which witness an upturn during market hours, closed nominally lower.

After a period of sluggish demand, the cement industry is witnessing a phase of growing demand due to an increase in construction activity, the government's road projects and a rise in rural demand following a normal monsoon this year.

The industry, however, has not been able to hike product prices due to recent capacity expansions particularly from companies such as Gujarat Ambuja Cements.

The steel industry is witnessing one of its worst periods currently due to a global slump in demand and fall in global steel prices. The imposition of restrictions by the US on steel imports has also affected Indian exports of steel.