Analysts say that cement companies, faced with dwindling demand, have been deliberately scaling down production, and despatches have plunged to 5.79 million tonnes last month from 6.15 million tonnes in July.

Cement output in the first five months (April-August) of the current fiscal at 31.97 million million tonnes was marginally higher compared to the same period last year, when the industry churned out 31.16 million tonnes of cement.

The drop in production in recent months, say analysts, has primarily been due to the advent of monsoons, as offtakes fall during the period due to a dip in construction activities. Demand for cement during the monsoons scale down to very low levels and producers deliberately cut production to maintain the price line, analysts added.

Although the August production is lower as comparedto the previous month, the monthly output and despatches have, in fact, increased over the corresponding period last year. Production in August last year was around 5.53 million tonnes, while despatches by the cement companies stood at 5.46 million tonnes.

Industry sources say that realisation of cement companies have risen as prices have shot up in several regions, except the largest markets of Western India where prices have crashed by Rs 15-20 per bag. In Mumbai, for example, cement prices have fallen to Rs 135-140 per 50-kg bag, as against Rs 55-160 last month, point out industry watchers.

However, the western Indian markets are unlikely to be rescued immediately through an informal cartelisation of the sort that has been worked out by manufacturers in south India. Most of the western Indian plants, say analysts, are relatively new, and therefore to reach their break-even levels, these companies have to push volumes. Such high volume marketing will not allow pricing arrangements to be worked outimmediately, say the industry watchers.

The western Indian price crash has begun largely due to a Gujarat contagion. With export prices low, the cement that was earlier heading out is now finding its way to nearby domestic markets, including Mumbai, as well as South India.

During the first quarter of 1997-98, production at 19.92 million tonnes was barely 5 per cent higher than production during April-June last year. The percentage growth in despatches were even lower at 19.87 million tonnes, as compared to 18.98 million tonnes during the first quarter of 1997-98.

Analysts point out that since there is hardly much construction activity during the monsoons, most cement companies resort to lower production to prevent a free fall in prices. The low output growth during April-August this year reversed the depressed price scenario in many regions, and resulted in better price realisation for cement makers especially in the eastern and northern markets.

Prices in the South shot back to a high of Rs 170 perbag, from an unprecedented low of Rs 140-145 per bag in May, while the Mumbai prices of Rs 135-40 has fallen from last month's prevailing price of Rs 155-160 per bag, which was the highest in recent months.

However, export prices continues to be grim and cement exporters are closely looking at the domestic market to gain from the recent spurt in cement prices. Gujarat Ambuja Cements, the largest cement exporter, may not gain much from large-scale cement exports, and the low export prices will force the company to be more aggressive in the domestic market (not in Gujarat where prices have touched an all-time low), say analysts. This, say analysts, might have an adverse impact on the company's bottomlines during the first quarter of the current fiscal. Gujarat Ambuja, which started the current fiscal in July, exports around 15 per cent of its total turnover.