Large capacities in steel & cement to cool prices
Economic Times

According to RBI’s annual policy statement for 2007-08, the central bank’s resolve is to condition policy and perceptions for inflation in the range of 4-4.5% over the medium term. The prime minister’s economic advisory council has recently said, after factoring in future correction of petroleum product prices, revised headline inflation (WPI-based) may fall below 4% in August-September 2007.

A key aspect that has not been highlighted is that the council in its Economic Outlook for 2007-08 implied that the (large) responses of two vital infrastructure industries — steel and cement — in capacity creation would have a sobering effect on prices in the coming years, leaving alone other factors. In 2007-08, new capacity of 13 mt is expected to come on line in the cement sector and a total of over 60 mt in the course of the next two years.

This represents capacity addition of an order much larger than in the recent past. “It is estimated that by March 2010, the country’s total cement capacity will be close to 245 mt, nearly 80 mt more than in March 2007,” said the council.

The situation in the steel sector is similar although there are more complexities involved due to the combination of the long-gestation periods required for capacity building in the sector and pre-emptive moves by players to lock into iron ore deposits and their greater orientation.

The aggregate investment plans announced by existing producers and prospective entrants to the Indian market exceeds 100 mt, double that of current installed capacity. Although there are uncertainties over how much of these planned capacities would materialise, it would seem that by 2010 about 14 mt of additional capacity would be available, another 45-55 mt by 2015 and yet another 40 mt by 2020.

The council does not hazard a guess on whether these capacity additions would make India a net exporter of steel but makes the “limited point” that the response by the steel industry in fresh investment has been large and considerable new capacities are likely to come on stream.

As for non-ferrous metals including aluminium, global prices used to be high in recent years. Being a major producer of aluminium and a net exporter, India’s domestic capacity growth has been around 1.2 lakh tonnes (lt) a year in the last three years.
Another 3.

lt capacity would be added to this in the next three years. In addition, a huge 17 lt capacity is on the anvil and these might come on line after 2010. In short, in all these sectors, huge capacity additions are being planned which might even outdo high domestic demand growth and this would contribute to cooling prices of a large number of commodities, including manufactured goods.

It may be noted that in steel and aluminium sectors, the domestic manufacturers now resort to ‘import-parity pricing’. Although the recent import duty cuts have reduced the room for such pricing policy, they still can do it to a certain extent.

This has had an inflationary impact on prices across the board. Such pricing freedom would be restricted in the coming years as domestic demand, which is slated to grow much faster than now, would nevertheless be outpaced by growth in capacities. It may be noted that the big squeeze in productive capacity in cement sector — which saw a frenzied growth in domestic demand in recent years (from 122.8 mt in ’03-04 to 158 mt in ’06-07) — has given a lot of pricing power to cement companies.

MRTPC to deal with cement firms
Hindustan Times

The government on Thursday said it is up to the Monopolies and Restrictive Trade Practices Commission (MRTPC) to take action against cement “cartels”, even as it announced plans to ease import rules to rein in high domestic prices.
“The MRTPC can take any action according to its provisions to deal with cement firms,” Department of Industrial Policy and Promotion Secretary Ajay Dua said on the sidelines of a CII seminar, adding, the government would relax certification norms to make cements imports easier and help bridge the demand-supply gap.

Prices would fall once imports began to arrive, he added.
“If the economy grows more 9 per cent, the growth in demand for cement will be 10 per cent, while supplies from domestic firms have been only increasing by 6-7 per cent,” Dua said. “We hope to bridge it partially through imports,” he added.
The government had cut duties in April, to increase supplies. However, shipments from Pakistan could not be distributed as foreign firms did not meet the certification norms issued by the Bureau of Indian Standards (BIS).

According to the present norms , a cement firm can sell its products only after BIS officials inspect its plants and issue clearance certificates. These rules would be relaxed and BIS could be allowed to issue foreign manufacturer certificates to overseas cement firms, within two months of an application being lodged, Dua said. So far Pakistani firms have expressed the most interest in exporting to India.

Cement prices shot up by close to 10 per cent in June from the year-ago period.
The MRTPC had issued notices to 14 cement firms, including Grasim, ACC and Ultratech, after its investigative arm, the Director General of Investigation and Registration, pointed toward cartelisation and “exorbitant” increase in prices.
While Cement Manufacturers Association (CMA) has maintained it has no role in price fixation, the DGIR had said that “Cement manufacturing companies met and discussed marketing strategies, including prices, at a CMA forum, to increase prices without any fear of competition.”

Companies against whom the MRTPC probe has been initiated include ACC, Binani Industries, Birla Corporation, Dalmia Cement, Grasim Industries, Gujarat Ambuja, JK Cement, Indian Cement Ltd, NCL Industries, OCL Industries, Saurastra Cement, Ultratech and Zuari Cement.
MRTPC’s action is among a series of measures taken by the government and the commission to rein in cement prices.

MRTPC to stop cement cartel: Govt
Pioneer

Government on Thursday said it is up to the Monopolies and Restrictive Trade Practices Commission to take action against cement firms which are alleged to have formed cartels and hiked prices frequently.

"MRTPC can take any action as per its provisions to deal with the cement firms," Department of Industrial Policy and Promotion Secretary Ajay Dua said on the sidelines of a Confederation of Indian Industry (CII) seminar.

He said the state governments and builders had pointed to price rise and sought relaxation in import norms to meet the demand-supply mismatch of the commodity in the country.

MRTPC has issued notices to 14 cement firms, including Grasim, ACC and Ultratech, after its investigative arm, Director General of Investigation and Registration, pointed toward cartelisation and "exorbitant" increase in prices.

While Cement Manufacturers Association (CMA) has maintained it has no role in price fixation, the DGIR had said the "cement manufacturing companies have got a forum of CMA to meet together and discuss marketing strategies, including prices, so
as to increase the prices without any fear of competition."

The companies against whom the MRTPC probe has been initiated include ACC, Binani Industries, Birla Corporation, Dalmia Cement, Grasim Industries, Gujarat Ambuja, JK Cement, Indian Cement Ltd, NCL Industries, OCL Industries, Saurastra Cement, Ultratech and Zuari Cement.

MRTPC's action is among a series of measures taken by the Government and the Commission to rein in cement prices. Finance Minister P Chidambaram had in April admitted the presence of a
cement cartel and its ability to deal with them without effective competition law in the country.