Monsoon has descended on the Indian shores. Torrential rain gives succor to all from the summer heat and it is always welcome. But for the Indian cement manufacturers, rains bring more heat. For this is the season when the cement business takes a beating.

Already there is news that cement prices have nosedived. Prices in Kerala, Tamil Nadu and Andhra Pradesh have dropped Rs. 20-50 per bag to Rs. 130, Rs. 120 and Rs. 95 per bag, respectively.

In Bangalore, manufacturers announced a three-day dispatch holiday after prices fell by Rs. 10 at Rs. 130 a bag. The retail prices in Bombay stand reduced to Rs. 143-145 per bag, while those in Calcutta, the main market in the east, have dropped to Rs. 125 per bag. While the monsoon is the primary reason behind the drop in cement prices, excess supply and new distribution strategies have also affected prices in different markets.

Cement prices in the south had also been affected by excess supply but in east India, cement manufacturers are engaged in an internecine war — directly dispatching to bulk customers to bypass the dealers.

Meanwhile, the Aditya Birla group company Grasim Industries has hiked its stake in Larsen & Toubro during the past few months. Grasim now has a 12.89 percent stake in L&T. This is pursuant to the company buying out Reliance Industries’ 10 percent stake in L&T for a consideration of Rs. 766 crore in November 2001. And after this development, L&T has deferred its decision to de-merge its cement division.

Grasim is a dominant player in the cement sector in the northern, western and southern regions, while L&T’s strongholds are the western, southern and eastern regions. L&T has a capacity of 16 million ton and plans to increase it by another three million ton by the year 2006.

But despite the fall in cement prices, cement manufacturers exude optimism for the future. In fact, capacity additions and a spurt in demand for cement have led to leading cement manufacturers clocking healthy growth in shipments in April. The cement industry is hopeful of a double-digit growth, as a result of the demand situation looking up, except in the southern markets. This could set the pace for a pick-up in offtakes in coming months.

The largest cement maker ACC, announced a 29.5 percent growth in dispatches in April 2002 to 12.46 lakh ton as against 9.62 lakh ton in corresponding period previous fiscal. Grasim Industries, along with its ailing arm Shree Digvijay Cements, recorded a25.7 percent growth in dispatches to 10.3 lakh ton compared to 8.2 lakh ton. Gujarat Ambuja Cements, the fourth largest player, reported a 3 percent growth in shipments to 6.26 lakh ton up from 6.1 lakh ton Most of the analysts are of the opinion that the current fall in the cement price is temporary and the industry is surely recovering as demand is catching up with supply. According to the regional analysis, it is estimated that south India will continue to face strong deficit markets growing at 25 percent-30 percent annually.

In the west, demand-supply parity is expected to continue but once the 2.5 million ton Sanghi Cements goes on stream, there will be some pressure of excess supply in the region. But Sanghi Cement does not believe this will happen as its unit has been designed with a jetty to support exports of almost 60 percent-70 percent of the capacity. However, it is embroiled in an environmental controversy for more than two years.

In the north, no new capacities are expected. However, units in Madhya Pradesh have been under utilizing capacity to maintain prices. Demand is expected to grow at 10 percent p.a. in the current year, thus exhausting the excess surplus. The units in Madhya Pradesh are expected to pump in more cement as demand keeps absorbing the supplies at particular price levels and hence this region is expected to have a price increase soon.

On the other hand, eastern India has a lot of surplus and it has had to resort to exports. No new capacity is expected in the coming months and the future growth is expected to stay at a low 8 percent-9 percent for the next couple of years.

The cement industry has already entered the phase of consolidation as the various mergers and acquisitions have all finally happened and settled. And this is expected to help improve the overall pricing environment in the coming months.