GST impact: Ultratech cuts cement price by up to 3 per cent
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The representatives from these Opposite Parties have at one occasion or another come forward to report an expected hike in price of cement per bag in the near future.
The prior knowIedge of trends in price hikes only goes, on to show that the prices of cement have been artificially determined amongst the OPs themselves in order to make abnormal profits. According to the informant, however, facts of the case as above show that Opposite Parties agree on fixing prices, apart from determining total industry output, market shares and also allocating territories amongst themselves.
It was prayed that the Commission might pass suitable directions so that the OPs might desist from engaging in cartelization, collusive price fixing and other anti-competitive practices as mentioned in the information. Prima Fade Opinion 3. Findings of DG 4.
The third category of the cement manufacturers is of 20 various small and mini cement plants with 1 to 2 MMT capacities which normally operate in a limited territory. Therefore, the DG focussed his investigation primarily on the top companies to investigate whether the cement minutacturing companies have indulged in anti-competitive practices. All the companies follow this geographical division and prepare their marketing strategies on the bases of these zones.
The demand of cement is derived primarily from housing, Infrastructure, Commercial construction and Industrial segments. The transportation of cement being a low value high volume product, over a long distance is uneconomical which makes the transportation of cement an important cost component.
The high transportation cost has created fragmented markets, which: The nature of product being almost homogeneous in nature facilitates oligopolistic pricing. Further the cement industry has witnessed a lot of consolidation and concentration of market in the last decade. However, in terms of market power none of the company has strength to operate independently.
CMA, under the instructions from DIPfl, as been cocting indicative retail and wholesale prices of cement from across the country.
Further, there has been a continuous divergence between the cement price index and the index price of various inputs like coal, electricity and crude petroleum and the gap has widened since The price of cement is rising faster than input prices. As such, the price of cement has been independent of the cost of sales. The price of cement is changed frequently by all the companies.
Sometimes, the price changes are made twice a week. The cost of production does not play an important role in the decision of pricing of cement except when there is substantial change in taxes or the cost of raw material.
The frequency of price changes of cement by all the companies also indicate that the decisions relating to price are not based on the change in the cost of production. It was also found that the prices move in a band width due to which similar trends are observed in the price movement of the Opposite Parties in a geographical area.
The investigation by DG revealed that although it has been claimed by almost all the parties that the price is decided on the market feedback, no formal or systematic mechanism or documentation system was found to he maintained by any of the parties to substantiate their arguniis of reliance on market feedback for affecting price changes. The analysis of the procedure The communications between the companies and the dealers reflect merely the prices to be charged and not the reason or any data to show that there is more demand.
According to DG, this shows that the prices are fixed and changed in a discretionary manner. However, it has been gathered that there is no formal system or mechanism of collection of data in place in case of any of the companies to ascertain demand of cement in a particular market to make decision relating to change in price.
The companies were unable to explain as to how the demand of cement was measured at a particular point of time. The companies have only stated that whatever quantity they produce is sold in the market and their dispatches reflect both demand and supplies.
After conducting analysis of Cost Audit Report of these companies, DG has submitted that cost of sales which also includes the cost of production varies from unit to unit within a group and also between companies.
However, the data show that cement industry has been able to post consistently good performance and has been able to realise good margins during last 3 4 years. On analysis of data, DG has found that on an average the margin per bag of cement is Rs. The companies have been trying to utilize the demand pull to improve the margins rather than to supply at competitive price. The companies have been taking advantage of demand to earn better margins on sales rather than meeting out the demand by producing and dispatching the cement by utiiizing the capacity at optimum level.
The economic analysis of the data confirms that the coefficient of correlation of change in prices or the movement of prices of all the companies is positive and are very close to each other more than 0.
Price of the cement of the Opposite Parties has moved in a particular direction in the entire country in a given period of time. The range of price movement has 21so been found same for all these companies. According to DG, this price parallelism is indicative of prior consultation among the Opposite Parties.
The examination of smal players revealed that they simply follow the trend of major players. Since the cost of production, transportation charge etc. Therefore, the movement of price of all the companies in the same range and in the same direction is not possible unless there is prior consultation and discussion about the prices among them. According to DG, price parallelism among the Opposite Parties stands established which is indicative of their collusive behavior. However, the capacity utilization is on a continuous downward trend From The Opposite Parties were not able to substantiate reasons for low capacity utilisation even during the period when the demand was high.
Further, as far as the consumption is concerned whatever is produced by cement manufacturers is consumed in the market. Therefore the argument of cement manufacturers that the capacity utilization has been lower in recent years on account of low demand is not tenable. The analysis of dispatch data for the period two years from January to December shows that the changes in dispatches of cement by the top companies were identical. The decisions relating to increase or decrease in dispatches are so close that it is indicative of some kind of meeting of mind.
While the capacity utilization has been declining, the price index has been increasing.
DG has concluded that the reduction in capacity utilization during and was deliberate in order to limit the supply ri a concerted manner to charge a higher price. The last quarter of F. It was noted by DG during investigation that the top companies have market leadership in one or more market. This, according to DG, allows them to coordinate their strategy to maximize the profit by charging unreasonable prices and facilitates the collusive price leadership in the market.
In such conditions any one firm can increase its share of the total by cutting its price but this is likely to cause a counter response by other firms also. Such competition will not increase total sales but will cut profits of all the firms. Under these conditions all the firms can increase their profits by reaching a tacit agreement as to the optimal, or near optimal price level.
Price leadership is one way of signaling the appropriate price level. The big players holding the maximum share normally triggers the price increase which is followed by the other manufacturers. The collusive price leadership is thus playing a great deal of role in the concerted action of cement manufacturcrs. The big players announce in press or TV channels that there is a probability of cement price hike in coming days which serves the purpose of price signals to the competitors.
The CMA has nominated different companies in 34 different centers to collect and disseminate the retail as welt as wholesale price to the CMA.
This information is either collected on phone or through emails. DG, however, has found the practice of collecting the weekly information on prices by the member companies as raising serious concerns under the provisions of the Competition Act. According to DG, the common platform of CMA is used or collection and dissemination of the information on prices of different companies.
Based on this information the different companies come to know about the prices of all the companies prevalent in the different zones of the country. The prices of cement are discussed in the meetings of this Committee.
The meetings dated Further CMA's publications which are internal circulation meant only for members, contains the details of production in respect of each plant of the member companies.
The publications in the form of 'Executive Summaiy - Cement industry' and 'Cement Statistics Inter-Regional Movement of Cement' 1 0oflmis71 35 released every month for circulation among the members only provide the minute details of production, dispatch of each company which facilitates the member companies to exchange the production related information and decide production strategy in line with other member companies.
It has also been concluded that the Opposite Parties have indulged in collusive price fixing.
According to DG, the act and conduct of the Opposite Parties are anti-competitive in contravention of the prcvisoiis of section 3c 3 a3 3 b of the Competition Act The Commission considered the report of DG and decided to forward the same to the parties for their objections, if any.
In addition, oral arguments were also made by them in course of inquiry proceedings before the Commission. It also assists Planning Commission and Parliamentary Committees as and when required with data pertaining to the industry. It does not indulge in disseminating communication among the members and it has no committee on prices.
There are at number of companies which manufacture cement and have large, medium and mini plants but are not the members of CMA. This cannot be the basis to say that the cement manufacturers under its aegis have controlled the supplies or fixed prices. The apprehensions of OP-2 and 3 cannot form the basis for an allegation of cartelization against it. DG has examined various non-members of the association without providing any opportunity of cross examination.
Further, many materials have also been collected at its hack. Further these prices vary from week to week and sometimes even twice a week. The prices don't move in one direction but they go up and down depending on the market conditions. There is a time gap in between collection of data on prevailing price at the time when supplied to it and when it sends it to the Government.
The price which is collected, usually, has always a time gap of over a week or so. It does not collect prices from each of its members. Under instructions from DIPP it has been collecting indicative retail prices of cement on weekly basis for wholesale price index from across the Country. No adverse inference can be drawn from mere historical collection of indicative range of prices at 34 centres for the previous week. Only after getting nod from DIPP, it has been collecting and sending to the lV1instry the statement of indicative weekly retail cement prices from various sources.
As late as on 17th January, Under Secretary to the. Government of India, Ministry of Commerce and Industry, Department of Industrial Policy and Promotion directed it to furnish information in prescribed format for a meeting of Group of Officers on infrastructure which was to be held on 31st January, Consequently a circular was issued to the concerned cement companies to comply with such directions issued by the government.
However, no adverse inference for its collection of data can be drawn against it. Bhagwati, none of its activities is violative of any of the provisions of the Act. In so far as CMA's role is concerned, the idea that it controls the price of cement or that it indulges in collusive price fixing is totally unfounded.
It does not collect price movement of each of its members or each cement manufacturing company but is informed of the average prevalent price in market for the purposes of onward transmission to DIP P.
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The prices vary from week to week and sometimes twice a week. Therefore these three meetings cannot lead to an inference that they had any impact on fluctuation of prices. In any event there is not the slightest evidence that prices were discussed at these meetings nor is there any explanation as to why only these three meetings have been referred to when meetings f its High Power Committee take place periodically.
It has no disciplinary powers nor has there been any instance of exercise of any such disciplinary power in an alleged activity of price fixation, The DG had examined its President and senior officials of other Opposite Parties as also others and none of them have said that CMA plays any role in price fixation of cement or has any authority to fix the same.
However, the said order was stayed by the Supreme Court and it cannot possibly be used against it. It is an accepted fact that the Associations whether of Manufacturers, Traders, Employees, Labour etc. Therefore, the mere fact that cement manufactures formed an Association does not imply that the said Association was formed to indulge in any activity which is against the law. The threshold for establishing the existence of an agreement has not been met in the present case and therefore the accusations must stand dismissed and should not be entertained further.
Even if it is conceded for the sake of argument that indirect economic evidence can be admitted for the purpose of speculating the existence of an agreement, it is indisputable that such evidence must be u. However, in the present case, even the indirect economic evidence produced is highly vague and suffers from numerous infirmities.
The DG has employed an arbitrary policy with respect to choosing the geographical market. Today romco cement rate in karala. Get today's price for 53 grade cement per bag. Today gold rate in kerala? Kerala's birth rate is 14 per females and falling fast.
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