Cement prices raised<\/p>\n
The government finally bowed to the \"market forces\" by
\nlegalizing the prevailing cement prices which have been hovering
\nat more than 40 percent above the 1993 fixed local price
\nreferences since last July. The new price references, which were
\nset by the trade minister and became effective on March 31, are
\nan average of 40.7 percent higher than the 1993 ones.<\/p>\n
We deliberately put quotation marks around the words \"market
\nforces\" because we have doubted that the steep rise in cement
\nprices from last July had really been entirely the work of an
\nopen market mechanism. Even the various ministries had differed
\nwidely in their conclusions about the reasons behind the price
\nincrease. But anyway, the prevailing prices since last July,
\nwhich actually violated the government-set price references, have
\nnow been legalized. Though the word legalize is actually not
\nrelevant because those who have been selling the building
\nmaterial way above the sanctioned price preferences have never
\nbeen penalized.<\/p>\n
The government did not explain as to whether the new prices
\nhad been set after thorough investigations into the structure of
\nthe cement production costs. But the fact is that the new prices
\nare now about the same as the international market prices.<\/p>\n
There is, nonetheless, a new clause included in the trade
\nminister's decree on the 1995 cement price references that allows
\nfor price reviews every January and July. But the clause, we
\nthink, is rather ambiguous, as it has not been clearly
\nascertained whether the review will be made against the
\ninternational prices or the local production costs. Nor does the
\ndecree stipulate what kind of penalties will be taken against
\nthose who sell cement above the local price references.<\/p>\n
So we reckon the new price references will remain simply price
\nguidelines for the various areas. Guidelines which may be
\nviolated by cement producers or distributors without any risk of
\nbeing punished. Cement manufacturers might simply cut down on
\ntheir production on such excuses as machinery downtime for repair
\nif they want to jack up prices.<\/p>\n
The government hopes that the higher price references will
\nencourage investors to carry out their cement projects which were
\nlicensed years ago but which have not been implemented due to
\nvarious reasons.<\/p>\n
We don't think the new price references will have a
\nsignificant impact on inflation because as we mentioned
\npreviously the actual prices have by and large been the same as
\nthe newly set prices since last July. We think contractors, too,
\nhave calculated their prices according to the prevailing prices
\nand based on the 1993 government-mandated price references. Some
\nproblems may nevertheless have an impact on the contractors for
\ngovernment projects if their cement costs were based on the 1993
\nprice references.<\/p>\n
Many analysts have contended, though, that as long as the
\ncement trade is not liberalized by freeing imports and exports
\nand by removing the restrictive marketing zone ruling, cement
\nusers will remain at the mercy of producers because the industry
\nhas long been dominated by only one or two business groups.<\/p>\n
In fact, the heavily regulated cement trade has been the main
\nhurdle to the implementation of new cement projects. We don't
\nthink freeing imports would flood the domestic market with
\nforeign made cement in view of the high freight costs of such a
\nbulky commodity. But a free-trade mechanism will not allow much
\nlatitude for domestic producers to jack up prices as they like
\nbecause if the price differences are too wide, imports will flow
\nin. The government policy on cement imports has so far been a
\nstop-and-go-policy whereby imports are suddenly freed whenever
\nprices tend to rise steeply and the import lid is closed down
\nwhen the prices become stable. Such a policy naturally does not
\nallow enough time for companies outside the cement sector to
\ndevelop a network of suppliers overseas and domestic distribution
\nnetworks.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/cement-prices-raised-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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