Rising cement prices

Demonetisation may have hit hard the country’s construction sector and building materials industry, but one wouldn’t suspect this negative fallout in Assam. Prior to the Prime Minister’s November 8 currency flushout announcement, cement companies in this State had raised prices by as much as Rs 40 per bag in August. This prompted Chief Minister Sarbanda Sonowal to hold a meeting with cement companies and ask them to cut rates forthwith. In case they did not comply, the CM directed concerned officials to file cases in the Competition Commission and Consumer Forum. Well, all that is water under the bridge, and cement companies are now back to their bad old ways in Assam, raising prices at will. In last two months post demonetization, cement companies here have raised prices at average Rs 22 per bag in phased manner. With cement bags priced way above Rs 360 presently, there is no knowing when this trend will be arrested, with the State government mysteriously going into silent mode. In his initial reaction last week, Industries minister Chandramohan Patowary professed ignorance about the price rise, which is not helping much. It is ucceptable that despite leading cement manufactures having factories in Assam and other NE states, while enjoying subsidies in transport, electricity, VAT and other benefits — consumers here pay far more for cement than in other states. There are also legitimate concerns about the quality of cement sold here, with government quality inspection departments nowhere in the picture.

Cement manufacturers have a bad reputation in rigging the market and fixing prices, and it needs a watchful, pro-active government to keep them under the leash. Only last August, the Competition Commission slapped a fine of Rs 6,714 crore on 10 cement companies and their lobby group Cement Manufacturers Association (CMA) for acting like a cartel. In Assam, it is usually seen that once cement prices start rising, other building materials follow suit. This is happening now, with steel rod prices shooting up by average Rs 3,000 per tonne in the last fortnight. At this rate, it won’t be long before brick and sand rates begin spiking in the State. As the building materials industry once again makes merry at the expense of hapless consumers in Assam, it is instructive to note the dismal projections being made for the sector as a whole countrywide. According to an estimate by India Ratings last week, the all-India demand for cement declined 20-25 percent in November-December; cement production is expected to grow slower at 4 percent (instead of around 6 percent) this fiscal. The two major demands for cement come from housing and infrastructure; the expectation is that while governments will keep building infrastructure, private housing will take a major hit due to demonetization woes.

The next fiscal is likely to be more challenging for the cement sector as the cash ban disruption begins to bite harder by pushing down demand, to be followed by tough laws to regulate the real estate sector as promised by the Modi government. The uncertainty over when Goods and Services tax (GST) will be implemented is also complicating matters. On the exterl front, surging crude oil prices is spelling bad news for the cement industry with input products like intertiol coal, pet coke and diesel getting costlier. Market alysts believe that higher input cost and lower demand will limit the ability of cement manufacturers to pass on the higher prices to consumers, thereby squeezing their profit margins. This may be true in many other states, but Assam bucks the trend with consumers here bearing the brunt and the State government not pulling its weight. Ironically, the Central government is hard selling demonetisation as a move that will benefit consumers across markets; the clean-up is expected to be pronounced in the real estate and construction sector where high cement and steel prices have hitherto made housing a very expensive dream for consumers. If this promised benefit eludes consumers in Assam, the finger of suspicion will be pointed towards yet another syndicate — this one of cement companies having their way after paying commissions and dotions to political masters.