Indian cement prices justified say producers

Indian cement prices justified say producers
Published: 15 March 2006

The consolidation in the industry has begun to pay off for cement makers. Cement prices across the country have touched historic highs and are expected to rise further. In North India, for instance, for the first time ever, prices have crossed Rs 200 per bag against Rs 140-Rs 150 a year ago. 
Cement executives put the higher prices down to a variety of reasons, not least, the recent court order against overloading by trucks which has affected the distribution of cement. Trucks, which earlier used to carry 14t in one trip, can now carry only 9t, causing a supply shortage.   Coal India now insists on cement companies to source 20 per cent of coal requirements via auctions. This has resulted in coal prices rising by 20 per cent.  
 But sources in the transport industry say, "A significant chunk of cement is moved through railways, whose rates have declined in the past two years. Secondly, four months after the SC decision banning overloading, 60 per cent of the trucks still don’t follow it," says a transporter.  
 Since November ’05, the effective truck freight rates for cement makers have gone up only 10-15 per cent. Against this, cement prices in North India rose by around 40 per cent in the past year.  
There is some truth in this. For ACC, outward freight charges accounted for 15.2 per cent of net sales during April-September ’05, while power and fuel accounted for another 19.4 per cent. So, every 10 per cent rise in freight and fuel and power cost should only lead to a 3.5 per cent increase in cement prices.  
 In UP, cement prices have moved up to Rs 155-165 per bag from Rs 135-140 per bag four months ago. In Chandigarh, they have moved up to Rs 190 a bag from Rs 145 a year ago. Others are unhappy at the attention cement prices are getting.  
"When, for years, we didn’t make money and most companies were struggling to stay float, why this sudden hue and cry over ’high’ cement prices," says an official at a South-based cement major. "It’s all market dynamics. Cement prices have stabilised and reached a sustainable level. It is good for the industry," concluded another official from ACC.