Most cement stocks down, companies refute charges

Most cement stocks down, companies refute charges

Even as cement companies brushed aside suggestions of price cartels after the Monopolies and Restrictive Trade Practices Commission (MRTPC) issued notices to large manufacturers, share prices of most cement companies fell anywhere between 1.7% and 8.6% on a day when the benchmark Bombay Stock Exchange Sensex fell just 0.61%.

India Cements Ltd was the biggest loser, down 8.6% to Rs205 a share, followed by a 5.4% drop at Birla Corp. Ltd to Rs267.40 a share. Ultratech Ltd’s shares fell 4.8% to Rs921 while Holcim-controlled Ambuja Cements Ltd ended the day at Rs128.35, down 4.5%. India’s largest cement manufacturer, ACC Ltd, closed at Rs1,070.5, down 4.2%.

Cement prices have risen around 48% in the last two years at a time when the general rate of increase in prices as measured by the wholesale price index has been rising around 5% per annum.

The nationwide average price of cement in March 2005 was Rs150 for a 50kg bag. It rose to Rs165 a year later and touched Rs223 in March.

“The industry is maximizing the output. The price rise is due to demand and not due to a cartel," says Rupesh Sankhe, research analyst at ICICI Direct.

Demand is so strong for this seasonal commodity that many cement manufacturers are running their plants at full capacity, say industry veterans.

“What is happening is, when one company hikes the price, the others follow," said Sanjay Ladiwala, president of Cement Stockist & Dealers Association of Bombay. “There is demand and the market can absorb the price hike, so the prices have risen."

E.N. Murthy, secretary general of Cement Manufacturers’ Association (CMA), also denied any form of cartelization, which implies that producers collude to set high prices, in the 169 million tonne (mt) per annum industry.

“It is left to MRTPC to prove that there is a cartel," he said. “I have not seen any cartelization." Still, the association “has nothing to do with the pricing issue. It is decided by the industry," he noted.

Adds Puneet Dalmia, vice-president, Dalmia Cement Ltd: “Every allegation has to be supported with facts. Cartelization means creating an artificial scarcity in a market that should be plagued by oversupply. Cartelization happens in two situations: when the market is dominated by just three-four players and the capacity utilization is around 50-60%. None of these criteria are true at this point."

MRTPC on Tuesday issued notices to 14 cement manufacturers asking for information related to possible price fixing.

Notices of inquiry have been issued against companies such as Birla Corp., Zuari Cement, Binani Industries, ACC, NCL Industries, Gujarat Ambuja Cement, Grasim Industries, Sanghi Industries, Saurashtra Cement, JK Cement, India Cement and Ultratech Cement.

Several cement manufacturers refused to say if they received notices while others, such as R.K. Bagla, executive director of JK Cements Ltd, said: “We have not yet got the letter."

Manufacturers say that prices have been rising despite the commodity being freely importable at zero customs duty. This, according to them, is proof that the price rise is a pure interplay of market forces of supply and demand.

“Prices have risen due to supply tightening," says Dalmia. “The government has reduced the countervailing duty, we have no protection. This is a cyclical industry. The prices will cool off in two-three years’ time when the additional capacities come up."

As a cyclical industry, prices rise and fall in cycles of a couple of years.

Excessive profits accrued when prices are high, are supposed to compensate for years when prices fall and as a result profit suffers.

Bagla of JK Cement says: “There are over 53 big cement manufacturing companies. In every regional market you will find 15-20 companies operating. Where is the question of cartel?“ Bagla goes on to assert that goverment organizations “have their own way of thinking, which we don’t understand. Every plant is operating at 100%. In a market like this there can be no cartel. When we faced losses, nobody came to our relief. We are having some good times, builders are feeding wrong information to the government."

He also complained that nobody looks into the rise of real estate prices.

“Real estate prices have shot up manifold, nobody complains about that."