The Hindu Business Line : Cement stocks decline on export ban

Mumbai, April 11 The major cement stocks were amongst the top losers on the BSE as the Government banned cement exports as an anti-inflationary measure on Friday.

Ambuja Cements fell 3.61 per cent to Rs 117.60, Ultratech Cement ended down by 1.83 per cent at Rs 790.10; Grasim Industries lost 0.78 per cent to end at Rs 2,550, India Cements dropped by 0.49 per cent to Rs 183 and ACC by 0.22 per cent to Rs 812.60.

The 40-month high inflation level, at 7.41 per cent, has made the Government to take up inflation control measures. There is nothing to worry compared with what might follow later, should inflation surge to higher levels.

Rising demand

“More than the ban on exports, what is impacting these stock prices is the fear of price control measures that could be initiated by the Government,” said an analyst with a Mumbai-based brokerage firm.

“The impact on stock prices is minimal, but with the inflation rate rising, you can also expect more Government controls,” said Mr Ajay Parmar, Head of Research, Emkay Shares & Stock Brokers.

Earlier in the month, cement companies had raised prices by 3-4 per cent, taking into account the rising demand, rising fuel prices and the hike in value added tax. According to some analysts, a ban on exports might postpone price hikes to a certain extent, but would in no way help to control price rise across the country (only those cement companies which have facilities on the West coast export in any significant quantity).

Cutting tariffs

Also, as India exports less than 2 per cent of its total production, this ban will not have much of an impact on the sector, they said. The total production of cement in India was 166 million tonnes for the financial year ended March 2008.

“Around 50-60 per cent of exports come from UltraTech and Ambuja and these companies have been consciously trying to reduce their exports. And, as the domestic prices of cement are higher than international prices, cement companies might stand to benefit,” said Mr Hitesh Agrawal, Head of Research, Angel Broking Ltd.

Not only India, but several other countries are cutting tariffs and increasing import demand for commodities, while banning certain exports, says a report from Lehman Brothers. “These policies may appear sensible at the domestic level, but at the global level they risk exacerbating food scarcity by subverting the price mechanism and putting further upward pressure on global prices. These measures can also widen India’s trade deficit,” the report says.

The report also says that the Government is also using ‘moral suasion’ on cement and steel producers to not raise their prices. Given that raw material costs continue to escalate, producers are facing pressure on their profit margins, which in turn can hurt investment.

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