HeidelbergCement sees price correction, India

HeidelbergCement sees price correction, India
Published: 13 June 2011

Ashish Guha, MD of HeidelbergCement has said that with the onset of monsoon there has been correction in prices in various parts of the country in a recent interview with CNBC-TV18. The company is expecting the correction to be in the range of INR5-10 a bag in most regions.

Heidelberg has a bigger presence in the central India and their capacity utilisation in that region is about 100%. However, the company expects the realisation in Central India to decline in coming quarter.
He elaborated, "June is usually a pre-monsoon month and where the initial corrections of prices take place before the monsoons. We have had to make some downward correction in prices. We see our realizations going down by about Rs 100 in central India for this quarter July-September."

Below is a transcript of Mr Guha’s interview with CNBC-TV18.

Q: Are you noticing already a slackening of cement prices considering that the monsoon is on us and if yes, what could be the fall on realisations in this season?

A: There has been some correction in prices in various parts of the country. It is all over and that is every monsoon we would sense this, so it is nothing new. We were expecting some correction in prices, the correction is between Rs 5-10 a bag in most regions so, that will be the impact for us.

Q: Just talking about the overall trends in the cement industry for the first time in many years we have seen the cement demand actually lag the GDP growth. So, if you look at it from a yearly perspective the GDP has grown by about 8.5%, while the cement demand has grown only by about 5% or so. What are you really noticing in terms of a pick up in demand effect all from here on and how would that really affect the demand supply glut that you are seeing in system?

A: In normal circumstances the cement demand is about 1.1-1.2 times GDP growth. This is in normal conditions, where there is no impetus from infrastructure. When infrastructure spend goes much higher than normal times, it can go upto 1.5 times to 2 times GDP.

Having said that we are today as a fraction of GDP growth. If we were to believe in the story of India, and then we have to believe in the infrastructure stories. So, in the medium-term perspective I see very strong demand growth in cement in the coming years.

In the short-term however, we are just about flat of growing at 5-6% month-on-month, so that is not very rosy. But over a three- five year period, this is definitely going to be a change game for the cement industry.

Q: Therefore for the months gone by, that is the first half of 2011, what has been the capacity utilisation of the industry and what has been your capacity utilisation?

A: In central India, the capacity utilization is about 100%. In South, it is roughly about 70% give or take 2-3%. In west it is about 85%, in north it is about 85%, in east it is about 80%. So, that is the kind of capacity utilization we are seeing.

We are expecting a capacity utilisation overall, this year to be anywhere between 80-84% , of which south, which has got the highest cement capacity, will be below 70%. So, overall, on a all India basis, the other regions, will have more than 85-90% capacity utilisation.

Q: You have a bigger presence in central India. What kind of prices are you seeing there and given the fact that April-May generally a slower month and you are expecting things to pick up in June how much of an impact would that have on realizations for your company?

A: June is not really a pick up month for us. June is usually a pre-monsoon month and where the initial corrections of prices take place before the monsoons. So, we are seeing that kind of a change happening this year also.

We have had to make some correction in prices, downward correction. We see our realisations going down by about Rs 100 in central India for this quarter July-September.