Price fall, higher input costs, southern India

The combined impact of a fall in price and a rise in input costs has adversely affected South India-based cement companies, even as the industry’s prospect at the national level is rated good.  The paradox in South India could be on account of limited activity in the infrastructure sector, said industry sources. A large part of demand for the cement industry arises from infrastructure and housing projects.

The situation is different at the national level. Mr N. Prasad, Chief Investment Officer at Sundaram Mutual Fund, was positive about the economy’s prospects, and by extension, the cement industry too. Consumption statistics in South, however, point to poor demand. Tamil Nadu consumed 2.45Mt (2.42Mt) in the second quarter of 2004-05, a growth of one per cent over the previous year. In the earlier quarter, consumption had dropped by 13 per cent to stand at 2Mt (2.29Mt).

In the other key South Indian markets, Andhra Pradesh and Karnataka, consumption dropped in the second quarter of 2004-05. Andhra Pradesh consumed 1.94Mt (2.11Mt), while Karnataka’s consumption stood at 1.91Mt (1.97Mt).  In Tamil Nadu, the biggest market in South India, the wholesale price of a cement bag is about Rs 140 at present, a fall of 18 per cent over the last two months.

Among the larger companies, India Cements and Madras Cements, whose factories are located entirely in South India, would be the worst hit by the environment. To compound the situation, industry’s inputs have grown more expensive in the recent past. Key inputs such as coal and furnace oil that are used in manufacturing process have become more expensive.  Cement manufacturers in the South import coal largely from Indonesia. The current price is $63- $65 a tonne as against $35 a tonne in April 2003. Furnace oil price has gone up by almost Rs 2000 a kilolitre since the end of the last financial year.