The cement price has already hit the roof-top and threatening to go up even further adding to the worries of the real estate business. In fact, the realty has big hopes that the coming festive season would help them recover the losses they suffered during the recent recession. These hopes seem to be fast evaporating due to the recent rise in the cement prices.
In just a few days time, the cement prices have gone up by a whopping Rs 15-20 a bag. Particularly in states like Tamil Nadu where the construction activity is going on at a brisk pace, the cement price has crossed all the limits. The price for a 50 kg bag, sold at Rs 145 a fortnight ago, is now selling at Rs 265. Though, the Tamil Nadu government tried to stem the price rise by threatening to take serious action against the cement manufacturers, it failed to yield results. The Tamil Nadu government has warned the manufacturers that it would bring the stocks from the neighbouring states to rein in the steep hike of the prices. “The cement manufacturers are not ready to cut the prices even by Rs 5 a bag. They seem to be least bothered about the warnings issued by the TN government,” said a real estate businessman. Though the construction industry has witnessed sharp hikes in cement and steel prices in the past, they have never been as steep and sudden as the current spurt, he added.
It is not just Tamil Nadu and Andhra Pradesh where the cement prices have skyrocketed in a short span of time, but the entire country is witnessing a similar trend in the recent times. Cement prices have leapfrogged in northern states like Uttar Pradesh, too, and in January this year, the have gone up by Rs 20 per bag. The eastern region, particularly Kolkata, has seen stable prices in January; however, over the next few weeks, dealers expect prices in Kolkata to increase by Rs 5-10 per bag.
Who to blame for the cement price rise? Some analysts say the price rise is mainly due to logistics constraints created by shortage in railway wagons and supply disruption in Andhra Pradesh, which is a major hub for cement manufacturing in the country.
After a near lull in the construction activity, due to recession and other reasons, in the recent time, the construction activity seems to be picking up again. Indeed, with the busy construction season setting in, cement prices are expected to increase further by 5-10% and the trend is expected to continue till June this year, say industry experts. Historically, the January-March quarter has seen peak demand for cement, leading to enhanced utilisation levels across cement manufacturing units, they add. “Cement prices are expected to move up by 5-10% till December this year.
However apart from the increase in the demand, the rise in price will also reflect rising inflation,” warned a trade expert. According to him, “There are all indications that petrol and diesel prices are set to increase as also railway freight charges. Moreover, prices of imported coal have also increased in the last quarter, resulting in rise in input cost for the manufacturers.”
Coal prices have gone up tremendously in the recent times, which triggered the cement price in the country, some say. Currently, robust demand is being led by north and east India with a 15-18% year -on-year growth, driven by extensive housing and infrastructure construction in both regions, coupled with the ongoing Commonwealth Games in Delhi, which triggered a huge demand for the product due the volume of the construction activity the organising committee has taken up to host the prestigious Games.
Then, why there is such a furore over the rise in the cement prices in the country. For, the cement is not only the base product for any construction activity, it also generates huge employment opportunities, directly and indirectly. In fact, cement is one of the core industries which plays a vital role in the growth and expansion of a nation. The cement is basically a mixture of compounds, consisting mainly of silicates and aluminates of calcium, formed out of calcium oxide, silica, aluminium oxide and iron oxide. The demand for cement depends primarily on the pace of activities in the business, financial, real estate and infrastructure sectors of the economy. Cement is considered preferred building material and is used worldwide for all construction works such as housing and industrial construction, as well as for creation of infrastructures like ports, roads, power plants, etc. Indian cement industry is globally competitive because the industry has witnessed healthy trends such as cost control and continuous technology upgradation.
According to sources available, the origins of Indian cement industry can be traced back to 1914 when the first unit was set-up at Porbandar with a capacity of 1000 tonnes. Today cement industry comprises of 125 large cement plants and more than 300 mini cement plants. The Indian cement industry is the second largest in the world. It comprises of 140 large and more than 365 mini cement plants. The industry’s capacity at the beginning of the year 2009-10 was 217.80 million tonnes. During 2008-09, total cement consumption in India stood at 178 million tonnes while exports of cement and clinker amounted to around 3 million tonnes.The industry occupies an important place in the national economy because of its strong linkages to other sectors such as construction, transportation, coal and power. The cement industry is also one of the major contributors to the exchequer by way of indirect taxes. Over the last few years, the Indian cement industry witnessed strong growth, with demand reporting a compounded annual growth rate (CAGR) of 9.3% and capacity addition a CAGR of 5.6% between 2004-05 and 2008-09. The main factors prompting this growth in demand include the real estate boom during 2004-08, increased investments in infrastructure by both the private sector and Government, and higher Governmental spending under various social programmes. With demand growth being buoyant and capacity addition limited, the industry posted capacity utilisation levels of around 93% during the last five years. Improved prices in conjunction with volume growth led to the domestic cement industry reporting robust growth in turnover and profitability during the period 2005-09.
Various governmental programmes like National Rural Employment Guarantee
Low-cost housing in urban and rural areas under schemes like Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and Indira Aawas Yojana
Technological Advancements
Further, the cement Industry is on a roll in the country now. Driven by a booming real estate sector, global demand and increased activity in infrastructure development such as state and national highways, the cement industry has witnessed tremendous growth in the recent times. Production capacity has gone up and top cement companies of the world are vying to enter the Indian market, thereby sparking off a spate of mergers and acquisitions. Cement industry in India has also made tremendous strides in technological upgradation and assimilation of latest technology. Presently, 93 per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology. The induction of advanced technology has helped the industry immensely to conserve energy and fuel and to save materials substantially. Indian cement industry has also acquired technical capability to produce different types of cement. Cement industry in India is currently going through a consolidation phase with several international players entering the Indian market and with acquisations and take-overs, the industry has been witnessing an intense activity in the recent times.
However, high transportation cost is affecting the competitiveness of the cement industry. Freight accounts for 17% of the production cost. Road is the preferred mode for transportation for distances less than 250km. However, industry is heavily dependant on roads for longer distances too as the railway infrastructure is not adequate. Cement industry is highly capital intensive industry and nearly 55-60% of the inputs are controlled by the government. There is a regional imbalance in the distribution of cement industry. Limestone availability in pockets has led to uneven capacity additions. Coal availability and quality is also affecting the production.
Andhra Pradesh is the leading manufacturer in the country. Cement prices in Andhra Pradesh are at a new high with the onset of construction season. While the average cement price during the entire year hovers around Rs 115 per bag in the state, it normally goes up to around Rs 135 during the peak construction season, ie, summer. Compared to the last summer, the current retail prices show an average increase of Rs 10 to Rs 15 a bag across the board. A cement trader attributes the increasing prices of cement to the construction boom in the state which has resulted in increased consumption of cement. “With the pace of real estate activity is picking up in the state once after a near two-year slump due to recession, the prices of cement are expected to grow further, ‘“ a business analyst warned. Adding further he said, the real estate activity in the state capital is picking up slowly with struggle for separate Telangana state subsiding at least for now. The realty activity is already at a very high stage in Vijayawada and Visakhapatnam since these two metros, are expected to go at a faster pace, if separate Telangana state is created. Once a decision on the separate Telangana is taken, the state may witness a big boom in real estate activity again, he said.
There is a word of caution too. Though, in terms of cement production, Andhra Pradesh leads the list with 14.72% of production, some real estate businessmen warn that lack of stability in the cement industry is likely to hit the industry growth in the days to come. “Certainly, there can be fluctuations in the prices of any product. But such a phenomenal rise in the cement prices in just a few days, will only hurt the industry, he said, blaming the rise to cement cartel. “There are a few companies which formed as a cartel and controlling the price of the cement. This is certainly not good for the industry. These type of unholy practices only hamper the positive growth of the industry,” he warned. Is anyone listening?