INDIA BUSINESS WORLD - JULY - AUGUST - 2007
The Month that was ...

MRTPC ORDERS PROBE INTO BUSINESS PRACTICES OF 14 CEMENT MANUFACTURERS

ALLEGATIONS of cartelisation continue to dog the cement industry. The country's trade practices regulator, MRTPC ordered an investigation into the business practices of 14 leading cement manufacturers, which are alleged to have colluded to increase prices.

The commission issued notices of inquiry against these companies after its investigative wing-the Director General of Investigation and Registration (DGIR) - submitted a preliminary report on the matter. The companies, which include Birla Corporation, Zuari Cement, Binani Industries, ACC, NCL Industries, Gujarat Ambuja Cement, Grasim Industries, Sanghi Industries, Saurashtra Cement, JK Cement, India Cements and Ultratech Cement, have been given time till October 25 to reply to the charges.

ACC, Grasim and India Cements situation accounted for the price rise. The DGIR concluded that the price hikes were for reasons other than a rise in the cost of production, which worked out to about Rs 7 for a 50-kg cement bag.

In comparison, between April 2005 and March 2006, the price of a 50-kg cement bag rose over Rs 50 in the Delhi market. The price hike in Mumbai was Rs 50 in the same period. The price rise thus far exceeded the increase in input costs, says the DGIR.

The investigation report also said the Cement Manufacturers' Association (CMA), representing different cement manufacturers, served as a platform for discussing price-related issues. The body has various zonal marketing committees, in which top company executives are present. This gives them enough opportunity to meet and decide pricing and marketing strategies, according to the DGIR. The CMA managing committee held three meetings during 2005-06, when "exorbitant price increases" were noticed, the DGIR said.

CMA secretary-general EN Murthy, declined to comment when contacted. The CEO of a company indicted by the panel said on condition of anonymity, "The inquiry panel's charges are all baseless. How can you have cartels when there is a shortage of cement in the country."

The DGIR analysed prices, demand, capacity utilisation and expansion in the industry in 2005 and 2006 to find out if the price hikes were justified. It did not buy the argument put forward by companies that costlier raw materials and tight demand-supply however, denied these charges. "Cement manufacturers don't discuss prices at CMA meetings. CMA's policy is to discuss industry-related issues other than prices," he said.

According to Ansal API president (marketing) Kunal Banerji, construction costs, which were about Rs 800 per sq ft a couple of years ago, have gone up to about Rs 1,300 per sq ft now, partly because of rising prices of cement and the demand for high-quality construction.