India - Calm before the storm

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Two trends have put the squeeze on the Indian cement industry this week. Firstly it emerged that producers were slashing prices ahead of the coming monsoon season. Then the Centre for Monitoring Indian Economy (CMIE) proclaimed that it expected cement prices to rise by 5.9% in the 2013 financial year.

Producers cutting prices in May, before the monsoon, is important because it suggests that overall cement demand is already down. Once the rains come demand will go down even more. A slowdown in construction, particularly in infrastructure projects, a labour shortage and a sand shortage have all been blamed. Looking ahead however, as the CMIE has done, suggests that prices have to go up due to the increase in railway freight charges announced in March 2012 and the excise duty hike announced in the Union Budget 2012-13. All that remains in the middle are the profit margins that the cement industry has become accustomed to.

Back in January 2012 Fitch Ratings predicted a 'negative outlook' for the Indian cement industry in 2012, based on overcapacity and higher interest rates. Now it seems that total capacity utilisation is down in 2012 compared to 2011, from 76.2% to 71.3%. Throw in the railway and duty increases and one might be tempted to feel that Fitch went easy on the subcontinent.

Yet, the cement producers have already found one silver lining in the monsoon season. Industry sources were soon reported as using price increases in the country's south zone and price decreases in the north zone as evidence that cartel-like behaviour couldn't possibly be happening. In a country as large as India perhaps they should have added the words 'nationally coordinated.' Despite the price drops, prices in the cities have been reported at an all-time high due to supply shortages - a situation that may be familiar to some consumers in Saudi Arabia.

Last modified on 30 May 2012


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