Dec 25, 1999|
Cement prices decline as demand remains sluggish
Cement prices have declined by Rs 10 per 50 kg bag in the last two months in the northern markets. According to reports, the decline in prices is due to sluggish demand in rural areas, slowdown in construction activity and an aggressive pricing policy followed by Lafarge in eastern India.
Lower cement prices will once again create a pressure on domestic companies to control costs in order to protect their margins. However, in view of the sharp appreciation in energy costs and the consequent hike in freight prices companies are unlikely to be able to control costs. The companies would likely suffer a decline in margin as they are unable to pass on the increase in costs. Still lower price realisations will compound the problem.
Another significant reason put forward by reports for the decline in prices is the aggressive pricing policy adopted by deep-pocketed Lafarge in the eastern markets. This is creating price pressures in the northern markets too. The company is apparently trying to garner market share in the domestic market. Although the policy may seem justified on the grounds of aggressiveness in increasing market share, it does not augur well for the other cement players. Whether this is likely to become a trend or just remain as a one off thing remains to be seen.
Larger cement companies would once again be able to protect margins to a larger extent in view of their low cost structure and ability to absorb a larger cost hike (or decline in prices). Marginal players will however once again be faced with the prospects of a significant decline in profitability.
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