Cement prices in Andhra Pradesh have once again fallen steeply -- by as much as Rs 40 per bag -- in recent weeks impacting the prices in the neighbouring markets as well.
One of the reasons cited for the intermittent price fluctuations in South India's cement surplus state is a 10-11 per cent decline in consumption as compared with last year. The demand scenario in Andhra Pradesh is in complete contrast to a 1 per cent demand growth projected for the whole of South India in a recent report by Bank of America Merrill Lynch.
A similar price fall was witnessed in August this year but it coincided with the entry of 3-4 new players into the market. The prices, however, again peaked to Rs 260-275 before falling to as low as Rs 220, the level which many consider unsustainable.
While the outflows from the AP plants usually constitute 50 per cent of the total production, the local market conditions have forced state players to push more volumes into the neighbouring markets with some offering price discounts, industry sources said.
These price discounts have led the cement prices to fall by Rs 40-50 in Maharashtra (up to Pune) to around Rs 260-270 per bag and by Rs 15-25 per bag in parts of Tamil Nadu, Karnataka and Odisha in recent weeks, according to a company official.
Cement companies are hoping the prices in AP will again firm up soon. They think a surge in demand is due in the fourth quarter as government-backed spending, estimated to be around Rs 10,000-crore, on housing, and irrigation among other programmes is expected to come into play.
“Negative growth and the entry of new players like Jaypee and JSW have impacted the prices in the AP market. However, there are signs of cement consumption picking up and it is also expected to be backed by the government spending in the fourth quarter, We expect to see a demand growth after Sankranti,” SVS Shetty, chief executive officer of Anjani Portland Cement Limited, told Business Standard.
Industry observers, however, believe the second sharp fall in a row reflects some underlining strains within the industry. A sharp cut in prices by some players with large capacities or a large market share would result in such a sudden fall, they say.
“If one company reduces the price of its brand others who command a premium in a particular market also lower the price a bit. Then the dealers force the companies to maintain the price gap between the competing brands in a bid to maintain their respective sales. This creates a chain reaction bringing the prices further down,” said a senior executive of a Hyderabad-based company while explaining the normal cause of a downward price movement.
The state’s top three market players -- Penna Cement Industries Limited, My Home Industries Limited and Chennai-based India Cements Limited -- command a little over 22 per cent share in AP, according to industry estimates. My Home, though smaller compared with the other two companies in terms of installed capacity, enjoys the top slot in AP.
Andhra as such is a crowded market with 42 brands sharing the pie. The capacities here are spread across different clusters having close proximity to major markets outside the state, giving them the ability to compete there too.
Production in the state stands at 2.5-3 million tonnes a month, which represents 50-55 per cent of the total installed capacity of close to 60 million tonnes (inclusive of blended cement) a year. The monthly consumption hovers around 1.4-1.6 million tonnes, including the inflows from outside the state. The share of outside volumes stood at 4.64 per cent of the total consumption during September.