Citi sees cement glut on export ban

The ban on cement export by India will lead to an oversupply in the domestic market in the current financial year, resulting in a "pricing pressure" in western states, according to a report by Citigroup's brokerage arm.

"We expect an oversupply in FY09, which will worsen due to this ban," Citi Investment Research said in its study on the impact of cement export ban in the country.

The government last week completely banned the export of cement to contain inflation, which touched a 40-month high of 7.41 per cent for the week ended March 29. It has since eased to 7.14 per cent during the first week of the current financial year.

"We expect near-term pricing pressure in Gujarat and Rajasthan," the report said, adding that the Mumbai market might not immediately face pricing pressure due to logistical constraints.

According to estimates of the report, the country exported about 6 million tonnes of cement and clinker in the last financial year. Gujarat alone accounted for about 75 per cent of the total exports. It produces 15 million tonnes of cement a year, but consumes only 11.5 million tonnes, according to the report.

The biggest impact on volumes and margins would be on Ambuja Cements and UltraTech Cement, the study said.

"While the companies affected are still formulating strategies such as finding new markets and setting up grinding units, they would suffer some volume loss, as finding new markets and the necessary infrastructure will take some time," the research report viewed.

The export volume of Ambuja Cements (ACL), the country's biggest cement exporter, was expected to be around 7-8 per cent of the total sales in 2008, it said, adding that "based on assumptions of some pricing pressure, volume loss and withdrawal of export incentives, our initial estimate is that ACL's CY08 PAT would be affected by about seven per cent".

Another leading exporter UltraTech Cement, which was to export 11-12 per cent of its total production in the current year, was expected to suffer about 10 per cent in its FY09 profit, it added.

Other major exporters include Sanghi Cement, Saurashtra Cement, Gujarat Sidhee Cement, Jaiprakash Cement, Prism Cement and Mangalam Cement.