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Cement: Prices racing ahead

S. Vaidya Nathan

THE last couple of months have been extremely good for the cement manufacturers as prices have staged a sharp spurt in a manner that has rarely been seen in the past. The spurt has taken place across the country in various regions. In the Mumbai market, prices (per 50 kg bag) have risen by close to 36 per cent in the last two months. From levels of around Rs. 140 per bag, they have moved up to Rs. 190 per bag as manufacturers have effected five successive rounds of price hikes. As a consequence, the Mum bai markets have seen price levels that were once in a while evident in the Tamil Nadu and Kerala markets.

Interestingly, in the first eight months of last fiscal year (1999-2000) even with growth of around 20 per cent, prices did not move up in this fashion. A high degree of supply side management driven by conscious production cuts, enhanced annual maintena nce periods and controlled levels of volume distribution across players seem to have helped producers enjoy a pricing power that has rarely come their way in the past. However, a big question mark hangs over the sustainability of such levels.

Much the same trend as the one in Mumbai has been repeated across the country though the degree of rise in amount terms differs from place to place. Even surplus markets such as Andhra Pradesh where at the best of times in the past, prices were locked cl ose to the Rs. 120 range, the price levels have moved up to close to Rs. 150 per bag. In the markets of Tamil Nadu and Kerala which have generally been islands of prosperity, in the last two years, prices had receded to lower levels as more capacity came in. But in the last six months, they have gradually edged up and are now close to highs of Rs. 180-Rs. 190.

This is traditionally a part of the year when prices move up in all markets except the most parts of the south. But the failure of the North-East Monsoon so far has led to firm trends in the South as well. What is interesting is that the rise in prices h as come at a time when demand levels have shown signs of flattening out. The slowdown in demand growth which started about year back has now come to levels where there was barely any growth in November 2000.

To some extent, this may be seen as more a function of the level of supplies put into the market by the producers than reflecting trends in demand. This is particularly true for the last two months. Amidst volume levels that are on par with what prevaile d last year and with no growth, cement prices have had a major bull run. Though cement producers may report better profitability for the October-December quarter, the question of sustainability would hinge on maintenance of supply side discipline (which in the past has broken up quickly) for a long period by the producers.