Similar trend is likely to be witnessed from the other regions as well, thereby lifting the overall fortunes of the cement sector from December onwards. Traders say, during the six-month period (April-September 1999), cement dispatches have grown by 20.04 per cent to 45.16 million tonnes, compared with the corresponding period of the previous year which witnessed a growth of just six per cent.

Thanks to the cash proceeds available to the rural folk, the increased offtake has resulted in cement prices jumping by around Rs 9-13 per 50 kg bag in the western region (Mumbai) since May this year. The latest credit policy has offered a few incentives to the housing sector besides the ones that were offered in the Finance Act. Housing finance loans up to Rs 1 million (previously Rs 0.5 million) will qualify as priority sector funding.

This will obviously bring down the interest rate for the housing finance which is already ruling at 20 years low and this will in turn boost housing demand. The impact of this will be reflected in demand for cement.

However, the price uptrend is not visible in the other three regions. Cement traders say the real pick up in demand is likely to be after the festivals.

Though the dispatch growth has come on a low base, the point to be considered is that even if next year, dispatches grow at a historical growth rate of eight per cent (assuming that for the current year dispatches grow by 12 per cent), the supply-demand mismatch will be sharply reduced.This therefore, is a clear indication of a further optimistic outlook for the entire cement sector beginning from November this year.

Though cash crops-cotton and edible oilseeds-have been adversely affected, the impact on cement offtake and therefore prices and consumption in Punjab and Gujarat is yet to be felt. However, as and when the impact comes, the prices in neighbouring region will be substantial.

As of now, the total capacity in India (excluding mini cement plants) is 110 million tonne and operating capacity (the plants that are operational) is 102 million tonne.

One bogey that is being raised is that as on end September, clinker stocks at 5.63 million tonnes is the highest in the last 18 months. Does the rising clinker stocks and falling prices in eastern India mean that cement story is over? The answer depends on two factors. One, how cost efficient the company is and second the location of the plant which restricts the area of dispatches. If one compares, all cement majors (L&T, ACC, India Cements, Grasim, Madras Cements and Gujarat Ambuja), the realisation is that except for Ambuja, L&T and MCL the other three majors have not distorted cost structure.

The location is important because though UP is the largest consumer of cement, because of the supply from the neighbouring states (because of limited limestone availability, UP hardly has any worthwhile capacity). In fact, as on March 1999, Madhya Pradesh accounted for 23.7 per cent of the total capacity, Rajasthan for 13.7 per cent (both the states feed Uttar Pradesh) and Andhra Pradesh for 15.2 per cent. Together, the three states account for 52.6 per cent of the Industry capacity. Cement units have to location specific because proximity to limestone is must.

Cement prices in India depend a lot on the cartel of cement manufacturers and top league wholeslalers. The prime example being the southern states. Despite the robust growth in demand, in Andhra Pradesh prices are lower than in Tamil Tadu and Kerala mainly because of excess capacity (the state has over 100 mini cement plants-installed capacity not to exceed 2,97,000 tonnes and dispatches in a financial year not exceeding 3,00,000 tonnes). The other example is Mumbai market, where despite marginal growth in demand, the highest priced brand is available at Rs 161 per bag. For the same grade of cement-53 grade in the same market, prices may vary by as much as Rs 10 per bag depending on the brand. Cement prices have to taken as company specific and not otherwise.

The silver lining for the industry is that based on the plants on order, the capacity addition will not be as severe as in 1996-97 (9.45 million tonne) and 1998-99 (8.46 million tonne).

Currently, all indicators point to cement recovery but only cost efficiency will separate boys from men.