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Indian cement industry worries over diesel price increases

World Cement,

As oil companies in India raise the cost of diesel by Rs.10/l, cement manufacturers in the south of the country are faced with greater production costs that they will find difficult to meet in light of depressed demand.

The price rise can be traced back to the fact the government has recently removed controls on diesel prices, perhaps because of the Rs.96 000 crore oil subsidy bill that it must now pick up. The removal of the controls has seen the oil companies instantly beginning to raise diesel prices, and though the initial price rise isn’t large, there’s no telling whether it will continue upwards.

This is just one of several issues currently affecting the cement industry. Power is in short supply, and this only deepens manufacturers’ dependence on diesel. Recent rail freight price hikes have also taken their toll, making the transportation of raw materials more expensive. It remains to be seen whether the diesel price situation will force that expense higher, but an increase in the cost of transporting cement and clinker by road is definitely on the horizon.

Of course, it is difficult to estimate the precise extent of the ways in which this will affect individual companies, as their dependence on diesel varies, but it is certain that it will put more pressure on the industry. Some of this pressure could be relieved if the government allowed duty free diesel imports as an incentive to potential importers, or even the cement companies themselves, but that is no more than speculation at the moment.

Adapted from various sources by Jack Davidson.

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