Cement manufacturers in the South of India, the largest market in the country, are bracing themselves for a tough year ahead, given the huge capacity that has gone on stream, more capacity additions planned and the falling prices.
In April-June, the southern market was down over the same period last year, but what is worrying the manufacturers more is the falling cement prices.
According to industry sources, cement prices in the South held firm in April and May, but started falling in June, a trend that has continued this month too.
In pockets of Andhra Pradesh, where cement despatches fell eight per cent in April-June 2010 to 3.8Mt over the same period last year, cement is being sold at prices below the manufacturing cost.
The production cost is about Rs 180 a bag, according to the sources. They say that prices fell by Rs 40 a bag in June in Andhra Pradesh, to around Rs 140-180 a 50-kg bag. This has forced some of the manufacturers to cut production with plants operating at around 70 per cent capacity.
The fall in prices combined with the increase in input costs will affect the companies.
In the South, despatches grew only in Karnataka, by 10 per cent to 2.8Mt during April-June 2010 over the previous corresponding period, while they rose by just two per cent in Tamil Nadu to 4.34Mt and fell five per cent in Kerala to 1.75Mt.
Manufacturers were hoping for a revival of the Andhra Pradesh market; there were some signs at the start of this financial year. However, this proved to be shortlived as consumption started falling towards the end of the just concluded quarter.
However, the western, central and northern markets continue to show good growth. Overall, the cement manufacturers say that the demand-supply scenario should balance out.
Transporting cement from production facilities in the South to the other markets is also another issue. There are not enough railway wagons are available and the freight costs make it uneconomical to move the commodity long distances.
According to an industry source, manufacturers are pushing cement from one region to another and can easily sell more quantity like this, but for the availability of wagons.