Cement makers create artificial shortage to increase prices
Oct 04 2013
Why are you alleging that cement companies are acting as cartel? How did you reach such a conclusion?
Demand for cement has not increased while prices have gone up significantly in the past couple of weeks. As evident, cement companies’ fortunes are directly linked to the real estate and infrastructure sectors. While both the sectors are witnessing a slow down, how can the demand for cement go up in the country?
If demand is low and supply more, the price should remain low instead of going up exponentially. Cement companies are not even operating at full capacity and the sector is witnessing tepid growth. Then what is the logic behind increasing prices?
The cement companies are restricting production to create artificial shortage and are increasing prices. Last year, Competition Commission of India (CCI) found cement manufacturers guilty of cartelisation and slapped a penalty of Rs 6,370.80 crore on 10 leading cement companies and on the Cement Manufacturers Association of India for price fixing.
While the final verdict on the matter should come in November, cement companies are continuing to act as cartel to increase prices.
What has been the quantum of price hike implemented by cement companies?
Cement prices have increased from Rs 210 to Rs 275 over the past few days, and indications are that they would go up to Rs 325 per bag in the near future.
A rise of Rs 50 per 50 kg cement bag leads to increase in cost of construction by approximately Rs 20–Rs 25 per sq ft. We are concerned about this sudden price rise. If our cost of construction goes up, sale prices would increase and customers may have to pay more as costs of all inputs like labour and building material have gone up by several notches. In these market conditions, increase in input cost would harm the interest of business and consumers.
It is the common man who ultimately bears the burden of such price hikes. Considering that buyer sentiment is low, the cement price rise defies logic. Housing costs would shoot up if the trend goes unchecked.
What steps are you taking against cement companies to counter the situation? When do you plan to approach CCI?
We have formed a committee and are working on the matter. We would soon approach Competition Commission of India and seek their intervention against the continuous price hike as this creates pressure on developers to increase property prices. We would file a complaint with all the evidence against the cement companies and are presently working on it. While the earlier case of cartelisation is not yet over, the cement companies are continuing to act as cartel. We should be filing a complaint the near future. At present, we are gathering all evidences against the companies.
Cement companies say the demand is low and has not grown as per their expectations. Their profits too have declined significantly. They have no other option but to increase prices to maintain profits. What is your view?
If the demand remains low, then where is the scope for increasing prices? The price should remain at par with demand. On the contrary, the prices have skyrocketed within couple of weeks.
Builders’ association had already fought a similar case earlier. Are you in touch with them? What do they have to say on the matter?
Yes, we are in touch with them and if required would seek their help as they have earlier fought a similar case.
How is the demand in the real estate sector? Do you see a revival in the festive season?
There is an overall slowdown across sectors and real estate sector too is witnessing a similar slack in demand. However, residential demand continues to be strong, as most people need a house. With the festive season round the corner real estate companies are expecting a revival.
While prices in most sectors are stable due to subdued demand and sectors like auto and real estate are offering freebies or festive offers to lure customers, how is it possible that cement companies are increasing prices so steeply? It is evident that they are cutting production to hike prices.