The higher price realisation enjoyed by Tamil Nadu cement manufacturers is attributed to market forces. But unofficially, the same market forces have led to individual members, driven by the need to protect their own interests, creating friction in the group. As a result, price wars have erupted in select pockets in Tamil Nadu.

Though L&T is being blamed for most of the problems, many players are also `not following' the agreement, admit industry sources. In a bid to push volumes, they cut prices which inevitably results in a price war in a particular area. To bring `order' in that place takes a lot of effort and time, they grumble.

They also misuse the concept of trade and non-trade sales to hoodwink each other. Non-trade sales are direct sales to bulk users like builders. These are sold at Rs 15 to Rs 20 per bagdiscount compared with sales through stockists. Many companies are cutting prices by selling to stockists indirectly by billing them as non-trade sales.

Adding to their woes is Tamil Nadu Cements Ltd (TANCEM), a state government-owned company which is not a part of the cartel. Till recently, the company was supplying close to 90 per cent of its production to the state government.

But from April this year, the Tamil Nadu government (largely due to lobbying by other manufacturers) removed the preference it had enjoyed both in terms of pricing and purchase, thereby forcing the company to sell its product in the open market. Currently it sells close to 50 per cent of its production in the market and has taken a conscious decision to price its products 10 per cent lower than those offered by others.

According to informed sources, matters came to a head recently, with one leading manufacturer, frustrated by the `lack of co-operation and trust', threatening to walk out of the set up.

Mistrust among thecement manufacturers in the south is nothing new. It was only the bleak scenario presented by a relentless rise of supply over demand which made them come together. Moreover, big players such as India Cements, Madras Cements and L&T were in the process of consolidating their capacities at that point of time and cash flows became critical.

In addition, Tamil Nadu manufacturers had to contend with cheap cement that found its way into the state from Andhra Pradesh. While the total capacity increase in Tamil Nadu in the recent past was 1.8 million tonnes, L&T's Tadapatri plant, close to the state border, alone pushed capacity in cement surplus Andhra Pradesh by about two million tonnes. The regional market leader India Cements took the lead in countering the cheap brands from Andhra Pradesh by launching a new brand priced at Rs 140 per bag in October last. This triggered a price war with all manufacturers slashing prices by Rs 10 to Rs 15 per bag. Realising that going would be tough at those price levels, theydecided to come together.

The cartel after that raised the prices in two stages (November and December) before breaking up in February, which resulted in the prices falling by over Rs 20 per bag. They re-grouped again in May, this time more vigorously, to increase the prices and cut back production.

They also effected a very sharp increase in July. Given the latest developments, it remains to be seen how long they will manage to hold the price line.