Plan to clamp down on cement prices?

Plan to clamp down on cement prices?
Published: 23 August 2006

Changes in India’s cement prices never made big headlines, not until the first week of April when it touched an all-time high of Rs 240 in Mumbai-India’s largest cement market. The pricing of cement became an even bigger issue when union minister for commerce and industry Kamal Nath came down heavily on cement manufacturers on May 12 for steep hike in prices of the commodity. The government threatened cement companies of strict action like export curbs or a cess if prices were not reined in. All the cement stocks except for three companies closed down on May 12. Then began a series of meetings among cement manufacturers. 
 
Three days later, representatives of the Cement Manufacturers Association (CMA) met the union minister and agreed to offer a "5% discount on central government supplies and not to hike prices any further." This move hurt the cement stocks again, with the overall market-capitalisation of cement companies crashing down from Rs 66,590.05 crore on May 12 to Rs 63,785.40 crore on May 15, down 4.2%.

"The 5% discount which the manufacturers promised is a joke," says a Mumbai-based builder. "The government seems to have accepted this just to show that they are doing something to keep the prices in check," he adds. Typically, the central government projects are handed over to contractors. Central government projects other than defence projects are not implemented directly by the government. Ultimately, it is the private contractors who end up buying cement from the manufacturers for central government projects, says the builder. "So, in this case, who will get the 5% discount?" he quips.

The manufacturers’ promise not to hike cement prices any further also turned out to be a myth. Within a month after the promise, companies hiked the prices again, for the fifth time in six months. "Cement is a deregulated commodity and the market will determine cement prices. Governments cannot control its price," says a south India-based cement manufacturer. "Cement is purely a demand-driven commodity, and its demand is growing at a rate of 8-9%."
 
A 5% discount on govt supplies doesn’t yield result as most of govt projects are handed over to private parties, say builders Companies hiked prices for the fifth time in six months, even after promising the govt that they won’t raise price "The sector had seen a tough time about two years ago, when companies were bleeding, and many turned sick. During the bad times, no government bothered about the companies. After a long time, good times are returning to the sector," says a Mumbai-based cement manufacturer.

"Builders’ accusation that cement companies are profiteering is baseless. Look at the hike in real estate prices, it has grown so much more in the last five years. Cement was sold at Rs 125 in 2001, went up to Rs 195 in January 2006 and is now selling at Rs 240," says a prominent Mumbai-based dealer. "It’s also not true that manufacturers are creating artificial scarcity to boost prices. Cement plants were running at full capacity in the January-March quarter,"

Manufacturers had also promised the union minister that they will adding around 35-40 mt capacity to the industry over the next two years. "These capacity additions will suffice to meet the 8-9% demand growth," says an official with a leading cement manufacturer. The demand, however, is growing over 9%. In the month of May, just before monsoons, it was growing at 11%. (original report Financial Express).