India: shortage of railway wagons effects cement prices

India: shortage of railway wagons effects cement prices
Published: 14 December 2009

After taking a sharp fall of 20-30 per cent in the last three months, cement prices have started showing signs of revival in western and southern India thanks to logistical constraints created by railway wagon shortage. Prices in these regions have firmed up in the range of Rs5-10 for a 50kg bag in the last week.

"There is a sudden shortage of wagons from Railways for transporting the commodity. Wagons are being diverted to food grains and fertilisers. So, now cement players are moving the commodity from the plant to the stockists via road which is more expensive," said Vinod Juneja, managing director of Binani Cement, a western India player.

He was quick to add that inventory is not yet piling up at the plants. There is a cost difference of 5-7 per cent between rail and road transportation.

A couple of industry watchers whom Business Standard contacted said the shortage of rail wagons could act as a trigger for hiking cement prices in the long run.

In late 2005, a ban on overloading of trucks had triggered a price hike of cement that went on unprecedented for the next two years or so due to rising fuel prices and input costs.

"In western India, however, prices in Gujarat are yet to see a major hike as transportation cost here is low because of proximity to plants," Juneja said. An official of a Kutch based cement company claimed on grounds of anonymity that all players would go for increasing prices from December 1 by Rs 5 per bag. Prices in the region are now around Rs 190 as maximum retail price, while the non-trade price was as low as Rs 160 in places close to the manufacturing facilities in Gujarat.

Rupesh Sankhe, an analyst based with Mumbai-based Angel Broking, claimed that prices are up not because of demand pull but entirely because of logistical issues. While Sankhe thought that the current surge in prices could be short-lived, Sanjay Ladiwala, president, Cement Stockists and Dealers’ Association felt that this can as well act as a trigger for a turnaround in prices that had seen a sharp fall recently. Ladiwala, however, maintained that the wagon shortage cannot be a long-term issue that would impact prices.

Prices in Mumbai, that are up by around Rs 5-7 a bag are currently around Rs 240-245 now. Major players like ACC, Ambuja Cements and Ultratech Cement are selling a 50 kg bag for around Rs 235 to Rs 245 now. When contacted an Ambuja spokesperson said, "We do not monitor prices on a daily basis. Prices are dictated by the market which is a highly competitive one".

Down south, prices in Andhra have started firming up from Rs 145 nearly a month ago to Rs 155-160 for a bag now, while in Karnataka and Tamil Nadu the commodity is selling for Rs 165 and Rs 175 per bag respectively. Industry insiders claimed that Madras Cement and Dalmia Cement, that together command nearly 40-50 per cent of the southern market, can go in for a ’pricing disclipline’ to check falling prices that had dipped below Rs 140 in October. Andhra and Karnataka have seen maximum capacity additions in recent times which have led to a huge drop in prices there. In Andhra and Karnataka about 20 million tonne per annum (mtpa) capacity is likely to be added in the next two years.

In north India, however, prices are yet to see a steep rise because of the recent wagon shortage. "Though there is a wagon shortage, prices here are stable", claimed H M Bangur, managing director of Shree Cement, a major north India player and the immediate past president of the Cement Manufacturers’ Association(CMA).

Prices in north have not seen a southward curve off late mainly driven by huge demand created by the upcoming Commonwealth Games in October 2010.