Commodities are on a roll

Sector leverages strong demand and rising global prices.

Aided by strong demand and rising global prices, key industrial commodities like synthetic fibres, cement, steel (long products), chemicals like caustic soda and chlorine, and paper have witnessed a sharp increase in prices in the last six months.

This is reflected in the higher turnover being reported by commodity companies.

For instance, the 21 listed producers of steel strips, bars and wires registered a turnover of Rs 1,155 crore during the quarter ended June 2004, up almost 65 per cent from Rs 701 crore during the same quarter of the previous year.

During the same period, the turnover of 26 cement companies increased by 15 per cent from Rs 3,362 crore to Rs 3,845 crore, while the turnover of 41 paper companies went up by 10 per cent from Rs 1,986 crore to Rs 2,174 crore.

Apart from a 10 per cent rise in international prices, paper prices have also been impacted by the 20 per cent rise in pulp prices, though these have softened marginally in the last month or so. Pulp accounts for over 50 per cent of the cost of producing paper.

"India is growing fast. We have seen a rise in volumes as well as prices," said Yogesh Agarwal, president (paper business) of Ballarpur Industries, the country's largest paper company.

The synthetic fibre industry has had to raise prices thanks to the sharp rise in the prices of crude oil. The prices of PTA (the raw material for PSF/POY and PFY) have gone up by 50 per cent. Thanks to buoyant demand, synthetic fibre companies

have been able to raise prices by 15-20 per cent. "The demand is high and we have been able to maintain our margins," said Indo Rama Synthetics managing director O.P. Lohia.

Prices of steel (long products) had risen by almost 20 per cent in the last six months till companies pared prices by 5 per cent a couple of weeks ago.

Almost 70 per cent of these products are produced by small rollers who are facing an acute shortage of raw material as shipbreaking has slowed down on environmental grounds.

Also, with the rising prices, the large players in the industry have curtailed their supply of semis which has resulted in a further rise in prices.

At the same time, there is an increased demand for the product owing to the boom in construction. Several real estate developers told Business Standard that steel was in short supply in the market.

Chemical and cement producers too admit that there is a strong growth in demand. But cement growth seems to be driven more by the northern and western markets.

"The growth is being driven by the north and the west. The south actually shrunk by 11 per cent in the first quarter of 2004-05," said Anil Singhvi, executive director, Gujarat Ambuja Cements.

As a result, cement prices in the south have fallen by as much as 10 per cent in the last six months.