Excess supplies and faltering demand have forced cement makers to reduce prices by Rs5-10 per 50kg bag in north India. The fall in prices of bulk cement, which is sold directly to builders, is more steep at Rs 20-25.
Cement makers say prices started softening in March-April across north India. The drop was first seen in bulk cement prices, where builders struck better bargains on the back of imports from Pakistan and fresh supplies from large capacities coming on stream in the January-March quarter. Gradually, as demand weakened due to slow construction activity, cement makers started offering a lower price even to retail customers.
"The supply clearly exceeds demand today. Demand has weakened in almost every state in the north due to a variety of reasons ranging from heavy rains to higher interest rates," says JK Cement group executive president RG Bagla. India has been battling a double-digit inflation for the past several months, forcing the country’s central bank to announce a series of interest rate hikes in a bid to slow down the economy. A combination of high interest rates and unaffordable prices has significantly destroyed demand for homes in the country leading to lesser construction activity.
Shree Cement MD HM Bangur says prices have softened and the fall could vary from Rs 2 to Rs 10 for different pockets in North India depending on the demand-supply situations in the respective area. He feels domestic installed capacity is clearly more than what India can currently absorb.
In order to bring an equilibrium between demand and supply so that prices do not fall further and hurt their bottomline, cement makers have cut capacity utilisation. The capacity utilisation for April-July this year fell to 88% from 95% in the same period last year. Utilisation was only 86% for June and July this year. The production for the four months ended July increased 6.7%, while despatch rose 6.6%. Analysts and industry leaders feel cement production is not going to grow more than 6% this year as the economy slows down.