Double whammy for real sector, Cement prices up when sales have stagnated

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Cement prices have jumped 20-40 per cent over the past two months in top cities despite demand from the real estate industry, which is its largest buyer, being low. This has put builders in a spot of bother, especially at a time when the market is already slow.

The builder body, Confederation of Real Estate Developers’ Associations of India (CREDAI), has alleged cartelization among cement companies and plans to approach the Competition Commission of India (CCI) to file a complaint, having filed a similar one last year. “They have created a shortage by cutting down on production. Cement companies are now quoting similar prices in different regions,” said Getamber Anand, national president of CREDAI and the managing director of ATS Infrastructure.

Sample this. Cement prices in Noida have risen from Rs 200 a bag in July this year to Rs 285 in September. In Bengaluru, prices have risen by about Rs 30 a bag in the last month or so to overRs 400 a bag. In Hyderabad, it has gone up from Rs 265 a bag in July to about Rs 305 a bag in September. In Ghaziabad, prices have risen from Rs 195 a bag in June to Rs 280 a bag in September.

Vineet Relia, managing director at SARE Homes, said it is unfortunate that the RBI governor and the government are nudging us to cut prices but cannot control raw material prices, including cement. “If the government wants to do something, it should control these cartels,” said Relia.

A cement analyst with a broking firm said till about June-July, most cement companies were undercutting each other but since then they have all got together and decided to focus on protecting their margins rather than gun for volumes.

Ajay Chandra, managing director of Gurgaon-based builder Unitech, said this increase in cement prices is quite unexpected. “This will not help the government in fulfilling its housing-for-all plan. Moreover, we have to absorb this price rise in existing projects but pricing in any new projects will reflect this input price increase,” he said

This is not the first time that builders have alleged cartelization against cement companies. The Builders’ Association of India (BAI) had filed a complaint with the CCI in 2010 in which it alleged that cement companies were colluding to fix cement prices. It had filed the complaint against 10 top cement manufacturers and the Cement Manufacturers’ Association (CMA).

CCI had later, in June 2012, imposed a penalty of Rs 6,300 crore on these cement companies. The Competition Appellate Tribunal (Compat) stayed the order in 2013, but asked the companies to deposit 10 per cent of the amount till the time their appeal is pending. The case is still going on.

Shankarbhai Desai, the 77-year-old vice-president of BAI who had taken on the cement companies in 2010, said it is a strange situation.

“If the real estate sector is not improving and new launches of projects have dropped across cities, how are cement prices rising, unless there is a pre-arrangement between cement companies,” he said, adding there is excess installed capacity in the cement sector than demand at present.

Builders said cement is one of the major components in construction activity. They require on an average one bag of cement per sq ft of built-up space. “So any increase in cement prices directly increases the total cost of construction,” said C Shekar Reddy, former president at CREDAI.

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