Cracks In The Cement

last year when it had to backtrack after it attempted to pass on the petro price and railway freight hike to consumers. Prices declined throughout last year, as producers fought a debilitating price war if only to protect their market share. Balance sheets have taken a massive hit; no wonder most cement stocks are reeling at 52-week lows.

Input costs have, however, continued their unrelenting spiral upwards even as the dismal infrastructure linkages have capped capacity utilisation. Power costs alone went up 22 per cent last year; coal is costlier and so are transportation costs. The industry is trying to meet these challenges in a piecemeal manner. Most companies, for instance, have set up captive power generation capacities, both for the lower running costs involved as also for ensuring some degree of reliability in supplies. As regards coal, a few companies have evinced interest in setting up captive mines. But it is still far from certain how the economics would work out. Importing coal is a worthwhile option for its higher calorific value, but is twice as costly as domestically produced coal. Transportation, however, is a difficult nut to crack as most of the units are set up close to the sources of input and therefore, far from the user markets. Unless the industry makes a determined bid to shift to bulk transportation of cement, there

is little it can do to contain transportation costs.

At one time, higher exports were expected to deliver the industry out of the slump. But large-scale dumping from China, as also the fact of massive plants coming on stream in the Gulf region, has put paid to the hopes. The industry is in for a prolonged phase of uncertainty, marked by a great deal of attrition and a lot of mergers and acquisitions. The setting up of additional capacities is ruled out. The only way in which cash rich companies can hope to consolidate their capacities and their infrastructure linkages is through strategic mergers and acquisitions.