Sluggish growth of construction sector in the wake of high steel prices has once again clearly pointed towards the fickle nature of growth projections often relied upon by allied construction industries, like cement etc.
Sources said here on Wednesday that trends in the construction industry in the past one-month show that the slowing down will soon have impact on the cement industry, which already is facing criticism because of price increases.
In these circumstances the contractors are unable to understand why cement manufacturers have resorted to price increases when construction industry is unable to complete projects because of higher prices of steel.
Cement prices are ranging from Rs 215 to Rs 225 a bag for the last several months whereas imported coal prices have gone up from $27/28 to $66/ $67 per tonne during the same period.
Industrial analyst said that the cement industry was witnessing one of the best years of demand growth and that has rendered many industries helpless in carrying out plans for capacity expansion.
"Only one year back, the cement industry demanded government help as it had enormous surplus capacity and it was utilising only 50 percent of the installed capacity", they reminded.
In the past, cement industry had formed a cartel that manipulated the prices of the cement. The cartel worked to guard industry's interest and they often increased prices to meet costs of huge plants that in the past had to survive with unutilised capacity.
Sources said that cement plants were installed with a huge capital costs and had also very high running costs with fuel (coal, gas or furnace oil) and electricity costs as major inputs.
Once the plant has unused surplus capacity, it becomes necessary to increase price to meet financial costs and that is what is feared for the future.
They said that industry projections were prepared on basis of some presumptions, but in the case of cement industry these presumptions have very weak foundations.
Geo-strategic factors like Afghanistan and trade relations with India could have an enormous impact on any projections.
For the time being, though, the industry is enjoying a high ride with over 80 percent capacity utilisation.
"This is a good time for the industry to consolidate and pay back small shareholders and creditors.
Analyst said that when industry was going through a bad patch in the past the small shareholders and financial institutions were at the receiving end, perhaps now is the time that they should be given back something by the industry.
The industry currently has a 17 million tons annual production capacity with some 13 million tons projected consumption this year.
The capacity may reach 29 million tons per annum within next three years. Some analysts, however, do not see demand exceeding 17 million tons per year by that time.
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