Further pressure on costs likely from fuel, coal price hikes

The recent hike in railway freight rates is expected to push up cement prices by Rs 8 to Rs 10 a 50-kg bag. Most cement companies seem to have already implemented a price increase, what with the current buoyant demand across the country.

Cement makers may face further cost pressure with expected mark-up in petrol and diesel prices and possible coal price hike of 10-12 per cent by Coal India to offset the increase in its wage costs, said an analyst.

Production price

ACC, which is largely dependent on the railway network for moving in raw material and moving out finished products to and from its plant in Karnataka, expects its production cost to increase.

“The increase in railway freight by way of rationalisation of distance slabs will have an impact of about Rs 225 crore per annum. This will mean a per tonne cost increase of Rs 225 on rail movement on an all-India basis,” said an ACC spokesperson.

There are expectations that the Government may increase excise duty by two per cent in the Budget to make up for the widening fiscal deficit. If this comes through, it will lead to a further rise in cement prices, said a cement dealer.

MORE REVENUE

The Railways intends to mop up additional revenue of Rs 15,000-20,000 crore from the recent freight hike for commodities including food grains, fertiliser, cement, coal and petroleum.

While the freight on coal and cement will go up by between 18 per cent and 24 per cent, it will rise between 20 and 35 per cent for food grains and fertilisers. The Railways have a revenue target of Rs 70,000 crore from freight during the current financial year.

In January, the Railways earned revenue of Rs 615 crore by transporting 9.92 million tonnes of cement. It also generated revenue of Rs 2,584 crore from transportation of 41.35 million tonnes of coal, a key raw material for cement companies.

The total freight earnings from commodities amounted to Rs 6,174 crore in January. Cement production in January increased 10.6 per cent to 20.6 million tonnes, while dispatches grew 10 per cent to 20.4 million tonnes.

In the last couple of years, the Railways has revised the classification of cement and clinker resulting in indirect freight hikes. In addition, a further burden on the cement industry has been imposed by levy of various surcharges, said a cement company official.

suresh@thehindu.co.in

(This article was published on March 12, 2012)
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