Cement

Ever Eventful South

The cement hub of the country is in a spot of bother, but things are still quite promising

South India has always been in the limelight when it comes to cement production. This time around however, the picture is quite different. What has kept the region in the news is not glowing production figures but the lack thereof, and that’s due to the impact of political whirlwinds. This is rather disappointing, since the southern region has always been looked upon as a destination, not only by indigenous manufacturers but by global cement giants as well.

For more than a year now, Andhra Pradesh has witnessed upturns in the wake of the Telangana issue. And the impact has been quite visible on the cement sector, which registered a decline of 21% in demand during the last quarter. Karnataka, which has also been politically volatile, saw an 8% decline against last year’s 10.5% growth! Although the demand dip in Kerala was a miniscule 2%, it definitely cannot be ignored, since the arrival of a new government might bring in a change in infrastructural planning. In Tamil Nadu, contractors have to contend with delayed payments from the previous government. It’s not surprising that demand has fallen from 3% to 1.88%.

Highlighting the gravity of the situation an analyst has commented, “During the past half a decade, south India has emerged as a role model for the cement industry. Whether it’s technology, capacity or profitability, this region has always moved in an upward trajectory. Even during the recessionary period of 2008 when many were complaining and mulling consolidation, south India defied the law of diminishing returns. But the current situation is rather meek and what makes it more disturbing is that politics is the culprit.”

And it’s just not politics that has kept the region in the news! South-based builders have time and again pointed to a cartelisation of the cement sector. They are of the view that large manufacturers were manipulating prices in an attempt to rake extra profits. And to counter this many builders from this region started importing cheaper cement from Pakistan.

This time around too the story is similar. In an attempt to tackle cartelisation and bring down cement prices in the state, the Tamil Nadu government is keen to source low-priced cement from UAE, Pakistan, Malaysia, Thailand and Indonesia. Tamil Nadu Cement Corporation (TANCEM) plans to source 5 lakh tonnes of cement through Chennai and Tuticorin ports. At the moment, a 50kg cement bag is priced between Rs 280–310. Imported cement will be sold for less than Rs250 per bag.

According to an official from TANCEM, “We are planning to import 2.5 lakh tonnes of cement in the Chennai port and an equal quantity at Tuticorin. This is mainly to bring down the price.” Echoing this sentiment another official from the organisation has stated, “The idea behind import of cement is to make the commodity cheaper to consumers. There will not be a compromise on quality and the product will comply with BIS standards. The cement will be sold to consumers in bulk on a cash and carry basis.”

Meanwhile, it’s expected that cement prices will rise once the rainy season is over, primarily due the foreseeable revival in construction activities. According to an official from Centre for Monitoring Indian Economy, “We expect cement prices to recover after the rains. With construction activity expected to pick up post-monsoon, demand is likely to rise.”

Since the onset of monsoon, cement rates have slumped across the country. During July, cement prices in Delhi dropped to Rs 256 per 50kg bag from Rs261 in April. In Mumbai, rates went down to Rs276 as against Rs283 in April. Similarly, prices in the Kolkata market descended to Rs247 from Rs298. Surprisingly, prices in the south haven’t been affected much.

Despite weakening demand, companies have performed well in the south during the last quarter. For instance, earnings of India Cements showed an increase from 14.15% to 23.23%. On the other hand, Madras Cements’ earnings rose from 28.2% to 32.3%. Clearly, there are positives, but again a lot depends on the politics in the region.