No effective way to curb cement prices

No effective way to curb cement prices
17 May 2006

Short of bringing Indian produced cement under the Essential Commodities Act which would be seen as "too anti-free market" there is no other way to meaningfully and effectively control the retail price of cement in a sustained way, said industry experts.  
Cement manufacturers might drop their price, but there are close to 70,000 retail outlets across the country. When there is such a demand as of now, the prices at which the retailers sell will follow market dynamics and cannot be controlled beyond a point, said a senior industry analyst.  
 "At least, we don’t think a 30-50 per cent price increase can be crunched into a 16 per cent price increase that the Government thinks is reasonable. Theoretically the Government can take drastic and arbitrary measures to control anything but we think it is unlikely in this liberalised economic scenario," he said.  
Of course, there might be some moral pressure in the precedent of steel price cuts volunteered by manufacturers two years ago in response to the Government’s appeal for industry assistance in curbing inflation he added.  
 But, while appalled that the Government could order them to cut prices cement manufacturers themselves are quietly optimistic that the scattered nature and geographical pricing pattern in the country would render any price control pretty difficult to sustain.  
 "We don’t move as an industry, when the Government asks for voluntary price cuts, every company will have to take its own decision on whether it will cut prices and by how much," said a senior official with a large manufacturing company.  How far an individual company would be willing to go will be determined by its own input costs (power, fuel, transportation costs) as well as its geographical location and it will be very difficult to determine how "reasonable" its pricing is, he said.   When there are 56 different manufacturers in the country you can imagine how difficult it will be to keep track of pricing, he said.  
Another issue that might support the manufacturers is that cement is at least one-and-a-half times as expensive in the neighbouring countries and as a sensitive commodity attracts maximum duty of 15 per cent. Even if this duty is cut, the country’s ports are not equipped to handle large bulk supplies, he said.   As for curbing exports, they form a very small proportion of the total production in the country said an analyst. Only a couple of companies such as UltraTech and Gujarat Ambuja will be impacted that too not substantially by any curb in exports he said.  
Published under Cement News