India: The Union Budget for 2012-13 has divided the cement industry on the likely impact of its new measures. An increase in excise and service tax is expected to increase the price for consumers, whilst an expected demand increase for cement will be driven by housing and infrastructure development.
Finance Minister Pranab Mukherjee proposed to exempt imported non-coking coal from the current basic duty of 5%. It is anticipated that this will have a positive impact of 1-1.5% on the industry's operating profit. The cement industry is the third largest consumer of coal after power and metallurgy, requiring about 15-20Mt/yr. At present, the industry meets close to one-fourth of its total coal requirement through imported coal.
Cutting the duty on imported non-coking coal has been offset by an increased excise and service tax of 2%. This hike in excise duty is expected to increase the cost of cement for consumers as manufacturers pass on the impact. One positive feature is the 30% abatement on the retail sale price, a long pending demand of the industry.
Meanwhile on the demand side the measures set to encourage housing and infrastructure development are expected to boost sales.
Overall opinions on the Union Budget have remained neutral for the cement industry, as the increase in excise duty combined with the recent increase in the cost of rail freight will result in a considerable increase in the cost of delivered cement. This will then impact upon the cost of construction. Although welcome the 30% abatement of the retail sale price will also pose some practical difficulties as the sales price changes with different markets.
