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Arijit De
Mumbai, Oct 12: Acute depression continued to grip the cement industry in the first half, as production increased by a mere 5 per cent, while despatches rose 5.1 per cent compared with the corresponding period last fiscal.
Cement company officials were apprehensive that the industry may not be able to maintain the same level of growth as in the previous three years. The sector has been growing at 9.66 per cent, 8.45 per cent and 10.59 per cent in the last three fiscals.
"Low demand coupled with oversupply in certain high cement-consuming areas like Gujarat and Maharashtra is really alarming. There are still no signs of demand picking up," said a senior marketing official with a leading cement manufacturer.
It has been widely reported that in the south, where prices have been buoyant for some time, have now begun moving southwards owing to severe price-cutting by some companies. Industry sources said that companies have been forced to undercut owing to poor cement offtake during the monsoon.
Productionin the last two months of the first half continued to fall, with September production touching 5.74 million tonnes, against 5.87 million tonnes in the previous month. Similarly, despatches plunged to 5.72 million tonnes compared with 5.80 million tonnes in August.
Although the August and September production and despatch figures are lower compared with the previous months, they match favourably when compared with previous fiscal figures.
Analysts maintained that cement companies, faced with dwindling demand, have been deliberately scaling down output. Production in the second quarter was 17.71 million tonnes, against 19.93 million tonne in the first three months.
The drop in production in recent months, say analysts, has primarily been due to monsoon, as offtake falls during the period owing to a lull in construction activities. During this period producers cut output in order to maintain the price line, analysts added.
According to industry sources, realisation of cement companies in recent monthshas risen as prices have shot up in several regions, except in the western region, where rates have crashed by Rs 15-20 per bag, and also in the south.
In Mumbai, for example, prices have fallen to around Rs 130 per 50-kg bag, against Rs 155-160 per bag two months back, while in Gujarat rates are reigning around Rs 90-95 per bag.
Industry sources said that in the last two months, demand in Maharashtra has been buoyant, but cement companies have not been able to raise prices fearing large inflows from Gujarat in that event.
Industry sources maintain that markets in the western region are unlikely to be rescued immediately through an informal cartelisation similar to the one worked out by manufacturers in the south.
Most of the western region plants, say analysts, are relatively new, and therefore to reach their break-even levels, companies have to push volumes. Such high-volume marketing will not allow pricing arrangements to be worked out immediately, feel industry observers.
The price crash in thewestern region has begun largely due to a Gujarat contagion. With low export prices, cement that was earlier heading out is now finding its way back into nearby domestic markets, including Mumbai, as well as the south.
The practice of low-output growth during April-September this year has reversed the depressed price scenario in several regions, resulting in better price realisation for cement makers especially in the eastern and northern markets, sources said. Prices in the south touched a high of Rs 160 per bag, from an unprecedented low of Rs 140-145 in May.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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