Broadly, everyone wants better profit margins. However, the needs of each individual cement manufacturer differ. Individual players are now deciding the price of their product based on their production costs and volumes; earlier, they decided based on only price and volumes – i.e., most were not too concerned about cost of production as pricing was lucrative. For some, marginal cost is determining the price at which they want to sell. Some have started looking at absolute profit-earning capabilities – so they are not margin-conscious, but cash-flow conscious and remain happy earning a decent absolute EBITDA / cash flow by selling higher volumes.
Choosing the right direction is beginning supply-chain improvements at the earliest.
Efficient feedback mechanisms and all-round development of employees will always add to the success of such initiatives. Manufacturers who have already initiated efforts in these directions will always have the early mover advantage vs. peers. The need for the improving cost of production has risen but to make a material difference and significantly gear these up huge capital investments will be necessary and not all players are prepared. While some have already maximised production efficiencies, others will soon reach optimum. Eventually all manufacturers will realise that the scope of incremental benefits from production efficiencies are limited vs. supply-chain efficiencies. Companies with high production efficiency have already started looking at supply-chain efficiencies; others will follow. Production efficiencies are not necessarily being done for cost improvement. In fact, in many cases the cost of operations may actually increase. The goal is much broader – for the sector to become socially more responsible, reduce maintenance expenditure, more environment-friendly, and more compliant.
Of late, stakeholders were worried that if the philosophies of manufacturers were not aligned due to increased individualistic thinking, pricing would suffer. Management commentaries also reflected some amount of misalignment. But GV’s extensive tour across several states of the country revealed that most of this ‘noise’ has settled. Discussions with participants across the value chain showed that almost everyone desires an improvement in earnings – through better volumes, prices, or efficiencies. As the scope of incremental efficiency improvements, especially production efficiency, remains limited, the time has come for the sector to look at volume and price alignment.
As many in the industry have continued to push volumes, natural forces of demand-supply are pre-dominant driving forces in determining cement prices, so it will not be easy for cement price to jump up sharply in the short term. However, in the long run, searching for supply-chain efficiencies will prove quite effective. Prices will recover as supply-chain loopholes are plugged. For players who do this sooner, there will be an almost automatic improvement in realisations. As the search for supply-chain efficiency intensifies, market prices will improve for everyone. It would be fair to say that cement prices would be directionally on an uptrend, but recovery may be slow and steady.
Subscribe to enjoy uninterrupted access
