Mar 31, 2003|
Cement: Exports imperative
The Indian cement industry is still in the grip of over capacity and the correction in supply does not seem in sight. Cement exports have been viewed mainly as a measure to reduce supply pressure in the domestic markets. Due to this mindset, no major thrust is being seen to cater to this lucrative segment. We take a look at the trend of cement exports in the past as well as future prospects of the same.
Indian cement exports have been limited to countries from the Middle East, neighbours like Nepal, Bangladesh and Sri Lanka and to a limited extent Western Europe. Gujarat Ambuja and L&T have been the major cement exporters in the country. Both have annual exports in the region of 1.3 m tonnes and 2.4 m tonnes respectively. These companies have adequate infrastructure like captive jetties to transport cement to the Middle East and South Asia.
Cement exports have shown an inconsistent growth in the last few years. Apart from the significant jump seen in FY01, cement exports have remained more or less stagnant. Even in FY03 cement exports may not show any significant growth as seen from the figures so far (3.4 m tonnes till October FY03). There are various reasons for the lackluster cement exports from India even when there is significant overcapacity in the country.
Cement exports require adequate infrastructure, mainly a captive jetty. Not all companies have this facility except companies like Gujarat Ambuja and L&T. Due to the lack of captive jetties cement exporters are forced to use commercial ports. At commercial ports, exporters have to pay heavy detention and demurrage charges due to lack of bulk handling and storage facilities. Hence congestion at the Indian ports and lack of cement handling facilities is a deterrent to cement exports.
Even though our cement industry is cost competitive, higher tariffs and relatively lower technology levels make Indian cement exports non competitive. Export-Import Bank of India (Exim Bank) has found that Indian cement is competitive in markets like Bangladesh and Kuwait, but not in other major import markets like Singapore, Sri Lanka, Malaysia and Philippines. The Exim Bank study shows the cement price in USA stand at around US$ 70 per tonne. Thai companies manage to export to the US at very competitive costs, around US$ 45 per tonne. This includes the high transport cost of US$ 30 per tonne plus the production costs of US$ 12-15 per tonne. Thus, Thai companies earn round about US$ 25 per tonne by exporting excess capacity to the US. Indian ex factory prices are in the range of US$ 22 to US$ 26 but are still higher then its South East Asian counterparts. This makes Indian cement less competitive in western markets.
As far as the prospects are concerned, companies like L&T have made an entry into the western European markets. Having said that, the presence is only nascent. In more developed countries of Western Europe and North America, cement prices rule in the region of between US$ 70 and US$ 80. US alone imports between 15-20 m tonnes of cement annually.
But India will have to compete with the likes of Mexico, Taiwan and the Philippines in order to gain a toehold even in this market. As we have highlighted above, Indian companies will also have to contend with the fact that cement exporting countries like Philippines and Thailand are able to export their excess capacity at very owing to lesser costs of production. This means that the export markets are immensely competitive but on the same hand lucrative also. Going forward only a concerted effort from the industry as well as the government help will promote Indian cement exports. This will not only help the Indian cement companies take care of excess volumes but also lead to firm prices domestically.
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