The World's White Cement

Daily: June 12, 2019


Dust matters in India

There was a glimmer of good news visible through the Delhi smog this week with the launch of a market-based emissions trading scheme (ETS) for particulate matter (PM). A pilot has started at Surat in Gujarat. The scheme will apply to 350 industries in the locality and it will be scrutinised for wider rollout in the country.

China robustly started to tackle its industrial PM emitters a few years ago although the work remains on-going. In its wake India has increasingly made the wrong sort of headlines with horrifically high dust emissions. Delhi, for example, reportedly had PM2.5 emissions of over 440µg/m3 in January 2019. To give this some context, the World Health Organisation’s (WHO) annual upper guideline figure for safe human exposure is 10µg/m3. Research by the Financial Times newspaper suggested that more than 40% of the Indian population is subject to annual PM2.5 emissions of over 50µg/m3.

Air Quality Life Index (AQLI) research reckons that if India were able to meet its national PM2.5 standard of 40µg/m3 then its population would live 1.8 years longer or 4.3 years longer if it met the WHO guideline level. The current situation is an unnecessary tragedy. In strictly structural terms the country’s productivity is being thrown away by damaging the health of its workforce. For comparison amongst other major cement producing countries, AQLI data placed China’s PM2.5 emissions at 39µg/m3, Indonesia at 22µg/m3, Vietnam at 20µg/m3 the US at 9µg/m3. These figures cover all industries in different conditions and climates. If the US can do it, why not the others?

Back on trading schemes, the famous ETS at the moment is the European one for CO2 emissions. Similar schemes are slowly appearing around the world as governments look at what the European Union (EU) did right and wrong. For example, South Africa started up a carbon tax in early June 2019. Yet as the supporting documents by the Gujarat Pollution Control Board (GPCB) point out there have been a variety of ETS systems’ over the years. The US’s Acid Rain Program is generally seen to have achieved significant reductions in SO2 and NOx emissions although the National Emission Standards for Hazardous Air Pollutants (NESHAP) has continued this work. Chile even ran its own PM ETS in the 1990s although the outcomes have been disputed.

One problem with a CO2 ETS, and anthropomorphic or man-made climate change in general, is that it is intangible. Even if sea levels deluge major coastal cities, rising mean temperatures reduce agricultural yields and human populations contract sharply, people will still be arguing over the research and the causes. The beauty of a PM ETS is that if it works you can literally see and feel the results. A famous example here is the UK’s Clean Air Act in the 1950s that banished the fog/smog that London used to be famous for.


Will cement makers heed govt’s warning and cut back on prices?

About a month before the general elections, Union minister Nitin Gadkari had warned cement companies of stern action if they formed cartels to increase the price of the key infrastructure commodity.

He has repeated the threat after the elections as well: “The price rise is not justified and the cement manufacturers seem to be moving like a cartel,” Gadkari said at an event last week, adding that the government is exploring the option of approaching the Competition Commission of India (CCI).

Investors in cement stocks are suiting up and taking notice. Stocks of large cement companies fell between 4% and 5% following the transport minister’s comments.

“Government intervention has been an issue several times in the past and has weighed on stocks, although the industry has not necessarily given into pressure by reducing cement prices. We currently have a positive sector view, but watch out for developments here as any negative outcome could have a material impact,” brokerage house CLSA Ltd said in a report on 7 June.

The cement industry has time and again been accused of taking concerted price hikes and indulging in cartelization. In August 2016, CCI had slapped penalties of about ₹6,300 crore on 11 cement companies for indulging in cartelization. The companies are still fighting the case in the Supreme Court.

But the moot question will be how the earnings will be impacted if the companies now reduce prices.

“Given the recent concerns raised by the transport ministry, cement companies will be cautious in taking steep price hikes from here on at least in the near-term. Till the time prices sustain around the current levels, the outlook on margins doesn’t change much. Some rollbacks, to the tune of say ₹10/bag have happened in some regions, but if we see further rollbacks then sentiment towards these stocks would turn negative,” said Abhishek Anand, vice- president (equity research) at JM Financial Institutional Securities Ltd. A cement bag weighs 50kg.

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According to another analyst with a domestic brokerage firm, who requested anonymity, even if prices correct, it may not necessary be an outcome of government pressure. Since the monsoon is a seasonally weak quarter for the sector, more often than not, prices tend to correct due to softening demand. “There have been times when prices have firmed ahead of monsoons due to pent-up demand, but they have hardly sustained,” he added.

Unlike last year, the sector has not seen pre-monsoon demand, so dealers are pushing sales by offering discounts. According to IIFL Institutional Equities Ltd, discounts have largely resurfaced in the southern region.

In sum, the fortunes of the cement sector remain dependent on the government, both in terms of the direction of the prices, and a demand boost through infrastructure projects.