ISSN: 1391 - 0531
Sunday November 4, 2007
Vol. 42 - No 23
Financial Times  

Facing a cement crisis

The country is facing a serious crisis of a shortage of cement since late September.

Some cement suppliers didn’t receive their cement shipments on time due to several reasons.

The reasons given are that damage due to a loading port in Padang, Indonesia from the recent tsunami caused loading delays and manufacturers have been rationing the supply due to excessive demand, and also the Ramazan fasting period in Muslim-majority Inonesia slowed down work at the loading ports further aggravating the present crisis Local cement suppliers depend on Indonesian cement due to high price of Indian cement and quality inconsistency of available sources of cement from countries like Malaysia.

The cement price is steadily increasing every three months by about Rs. 20 to 40 resulting today is the cost of a bag of cement being sold at Rs. 695.00 and bulk cement price at Rs. 11,700 per MT.

If the cement short supply continues, this will have a serious impact on the country’s major development projects as well as on the individual micro construction activities.

The consequences of the cement short supply will lead to delays in construction projects; cost escalations due to idling of labour/ machinery and prolongation; result in price increases; long queues at hardware shops to buy cement; traders selling cement at a “black market price”; reduction in turnover of the readymix concrete business and reduction in turnover of the cement supply chain business.

The slow down in construction activities will also affect the livelihood of many people involved in the construction activities and in the related businesses.

The government has a responsibility of looking into the matters pertaining to the short supply as well as on the price issue. Cement being a commodity under price monitoring, the Consumer Affairs Authority (CAA) needs to keep a control on the cement prices.

The question one must ask is has CAA monitored this product in a meaningful and rational manner? When cement suppliers create a short supply situation and demand a price increase, does the CAA analyze the total scenario objectively and give a fair decision to both the cement suppliers (importers and manufacturers) and consumers or do they take decisions based only on the information provided by the cement suppliers being subject to political pressures?

Only one company in Sri Lanka manufactures clinker required to produce cement and another company has clinker-grinding capacity. Four other companies import the balance requirement of cement in bulk form and small addition of direct bag cement imports ar done by few other trading companies.

Cement is a commodity, which has restrictions in its supply. Any cement before importation to the country needs to obtain the Sri Lanka Standards (SLS) certification, which is a long and time consuming process.

Cement being a perishable material entails risks of hardening within the supply chain process unless proper logistics and infrastructure facilities are available during transportation and storage. Hence it is not a commodity, which can be freely traded.

As such the responsibility of supplying the required quantity of cement to meet the country’s demand has to be met by six major existing suppliers.

The government needs to understand that the present short supply situation and never ending cry by cement suppliers for price increases every three months has created an alarming situation where a rational approach should be adopted in the supply chain and ensure consumers are also not fleeced.

While factors affecting the supply variables and price variables should be given due consideration, the government needs to ensure that a cement crisis situation should not hamper the country’s development activities which generate employment and provide infrastructure facilities for the people. Such a situation should also not hamper the ability (availability and affordability) of a common man to build his own shelter.

The CAA should set up a committee comprising of various stakeholders and members of relevant professional bodies to study the present crisis. The CAA should also continuously monitor the cement supply situation of the world market and get accurate information to face the price increasing demands of the cement suppliers.

Members of such a Monitoring Committee can be drawn from the Ministry of Construction, Ministry of Policy Planning Institution of Engineers, Contractors Association, Lanka Readymix Concrete Association and Sri Lanka Standards Institution.

The government also needs to encourage and facilitate existing local cement manufacturing companies to increase their capacities and needs to explore the possibility of recommencing the operations of KKS cement factory no sooner normalcy is established in the north.

It should also lure more investors to start bulk cement and bagging facilities to create fair competition, which would be beneficial to the people of this country.

Construction industry


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