Production cost of cement is expected to increase substantially as oil companies have raised the diesel price by Rs 10 a litre for institutional buyers. Most cement companies are already struggling to pass on the steep rise in freight and raw material costs due to depressed demand. Faced with a Rs 96,000-crore oil subsidy bill, the Union Government recently decontrolled diesel prices and allowed oil-marketing companies to raise retail prices in small installments.
Shree Cement Managing Director HM Bangur said that oil companies have already decontrolled diesel prices for cement companies. Given the fact that the company produce about 10 lakh tonne a month, the increase in production cost due to this price hike would be about Rs 50 lakh a month and Rs 5 a tonne, he said . With power supply tight in most southern States, cement companies there are more dependent on diesel. Besides, the recent hike in freight rates by the railways has also pushed up cost of transporting raw material.
Transporting cement, clinker and raw material by road will also turn costlier. A hike of Re 1 a litre on diesel will push freight cost on road by Rs 700-1,000. For instance, a round trip on the Delhi-Mumbai route will go up to Rs 54,700 from Rs 54,000. JK Lakshmi Cement Director Shailendra Choksi said the impact of diesel price hike will be multi-pronged and may vary for companies depending on their dependence on this industrial fuel.