Cement to remain firm in medium-term: CMIE

Cement prices are expected to remain firm in the medium-term owing to a continued buoyancy in demand, driven by housing and infrastructure sectors and cost pressure faced by cement companies, the Centre for Monitoring Indian Economy (CMIE) said in its monthly report.

Cement demand remained upbeat during April-January 2007-08, growing by a healthy 9.5 per cent against 9.9 per cent recorded in the year-ago period, CMIE said.

The average cement prices in Mumbai rose for the third consecutive month in February to reach Rs 249 per 50 kg bag.

"The proposal of the Railway Minister to cut freight on fly ash is not expected to have a significant impact on cement prices, as a very low proportion of fly ash is transported via rail," it said.

The Union Budget 2008-09 proposed to hike excise duty on clinker from the current Rs 350 a tonne to Rs 450 a tonne and to change excise duty on bulk cement from Rs 400 a tonne to either 14 per cent ad valorem duty or duty of Rs 400 a tonne, whichever is higher.

Bulk cement accounts for less than three per cent of total cement consumption in the country and an excise hike would affect a very small segment of cement manufacturers, CMIE said.

Continuing its decelerating trend, cement production grew by a modest five per cent in January 2008, it said, adding that the production growth has tapered off in recent months.

This reflected in the aggregate cement production growth during April-January 2007-08, which moderated to 7 per cent against 10.6 per cent posted in the year-ago period. This could be attributed to a deceleration in production growth in the western, central and eastern zones.

Of the total 12.7 million tonnes of new capacity that was commissioned during April-February 2008, only 2.8 million tonnes came on stream in these regions.

"The capacity limitations led to a muted production growth. Considering slow pace of capacity additions, we do not expect the cumulative production growth to pick up significantly," the CMIE report said.

CMIE has also revised its annual production growth forecast for FY08 downwards to 7.2 per cent.