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FRESH supplies and faltering demand have forced cement makers to reduce prices by Rs 5-10 per 50 kg bag in much of north India. The fall in prices of bulk cement, which is sold directly to builders, is even deeper at Rs 20-25.

Cement makers say prices started softening in March-April and are now visible across north India.

The drop was first seen in bulk cement prices, where builders struck better bargains, on the back of imports from Pakistan and fresh supplies from large capacities coming on stream in the January-March quarter.

Gradually, as demand weakened due to slow construction activity, cement makers started offering a lower price even to retail customers.

“The supply clearly exceeds demand today. Demand has weakened in almost every state in the north due to a variety of reasons ranging from heavy rains to higher interest rates,” says JK Cement group executive president R G Bagla.

India has been battling a doubledigit inflation for the past several months forcing the country’s central bank to announce a series of interest rate hikes in a bid to slow down the economy. A combination of high interest rates and unaffordable prices has significantly destroyed demand for homes in the country leading to lesser construction activity. Shree Cement managing director HM Bangur says prices have softened and the fall could vary from Rs 2 to Rs 10 for different pockets in north India depending on the demand-supply situations in the respective area. He feels domestic installed capacity is clearly more than what India can currently absorb.

To bring an equilibrium between demand and supply so that prices do not fall further and hurt their bottomline, cement makers have cut capacity utilisation. The capacity utilisation for April-July this year fell to 88% from 95% in the same period last year.

Utilisation was only 86% for June and July this year. The production for the four months ended July increased 6.7% and despatch 6.6%.

Analysts and industry leaders feel cement production is not going to grow more than 6% this year as the economy slows down. Cement industry added around 20 million tonnes of capacity in the first half of CY08 taking the current installed capacity to 203 million tonnes per annum.

The industry is expected to add another 50 million tonnes by the end of next calendar year, which may end up widening the supply-demand gap.

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