Taking the hike in cement prices that builders have been protesting into the turf of the manufacturers elicits not only a response in their defence, but also provides the historical context to the issue. The escalation of cement prices is not an unusual occurrence in Tamil Nadu, cement manufacturers across the State said. They pointed out that in 2015, the price of cement in Chennai went up to ₹415 per bag. And in the last four years, cement prices have not even touched 2015 levels, so it is not right to say that prices have hit the roof, they argued.
According to manufacturers, the share of cement cost is insignificant in the total construction cost. Only half a bag of cement is required per sq. ft. Even if the price increase is ₹30 to ₹40 per bag, its contribution to the construction cost would be only ₹20 per sq. ft, they argue. Last month, cement prices increased by ₹40 a bag on average to ₹357 a bag in the southern market.
Growing demand
N. Srinivasan, Vice-Chairman and Managing Director, India Cements, said that growing demand and higher capacity utilisation is one of the key reasons why prices are going up. “Due to the cyclical nature of demand, the capital-intensive cement industry is often unable to recover the increase in cost of production. Now, the demand for cement is more due to increasing consumption in infrastructure, irrigation and housing projects,” Mr Srinivasan explained.
He also said that it is wrong to say there is shortage or short supply in cement, when it is available on demand. Other cement manufacturers echoed Mr. Srinivasan and said that builders never pass on benefits to consumers when cement prices fall. Another official from a cement manufacturing firm said that this was by no means an ‘alarming increase’. He added that prices of all raw materials keep increasing from time to time, pushing prices up, and to target only cement manufacturers would not be fair.
Artificial demand
Builders on the other hand maintained that there is a cartelisation in the industry. “Everyone increasing prices at the same time looks fishy. How can all of them do it at the same time,” questioned Mehul. H. Doshi, secretary, CREDAI Chennai. Earlier this week, CREDAI had called for a meeting in which its members said that ‘artificial demand’ is being created by certain players in the cement sector.
Many builders said the sector had just emerged from the sand crisis, and this increase in cement price had added to their woes. Small builders indicated that the price increase would add to their construction cost.
P. Manishankar, president, Federation of Tamil Nadu Flat and Housing Promoters Association, had a different view: He said that cement prices usually spiral during this season and stabilise post June. “The usual hike of ₹30-₹40 per bag may not affect the industry.”
Cement makers said that buyers have a wide range of options available in the market. “In Chennai, you can get cement in the price range of ₹300 to ₹400 per bag . You have a choice of over 25 brands in the market. Then, how can you accuse anybody of cartelisation,” Mr. Srinivasan said.
According to a CRISIL report, the southern region saw the steepest hikes, at ₹52 per bag in Bengaluru, ₹62 per bag in Chennai, and ₹77 per bag in Hyderabad. Hikes in other regions were less sharp, at ₹26 per bag in the west (led by robust hike in Pune), ₹12 per bag in the east, ₹ 7 per bag in the central region, and a meagre ₹4 per bag in the north.
