Indian cement manufacturers, which are facing cost pressures and government intervention on pricing front, may face more trouble as cement prices are set to decline 15-20% by fiscal 2009-10, analysts say.
A research analyst from foreign brokerage said the cement manufacturers have announced capacity additions, which would bring additional supply of around 18Mta leading to lower capacity utilisation, which may drop below 80% from 100% now.
"The government would not let them hike prices and with oversupply hounding them, cement firms will have to cut prices," he said.
Also, a slowdown in the housing and infrastructure sectors would add to the woes.
Cement companies which are planning to export to countries such as Saudi Arabia, Kuwait, Dubai, Egypt and Iran would also face oversupply by FY2010. Egypt is already facing oversupply where the maximum construction is going on compared with other North African countries.
Analysts say importing cement from Gulf countries will be more viable than buying in domestically. The headline value for cement price in India is around Rs 240 per 50kg bag as against cement imported from other nations, which starts at Rs 130-180 per bag.
In the northern and western regions of the country, cement manufacturers such as Ambuja Cements, ACC, JK Lakshmi Cement and Dalmia Cement have announced major capacity expansions with effect from the current fiscal. The capacity addition is expected to be around 24-25%.
Cement supply from Pakistan accounts for 5-7% of the market in the northern region.
Shailendra Chouksey, CEO, JK Lakshmi Cement, said the input costs are rising and margins are coming under pressure. The company is not raising prices due to government’s intervention. "Post monsoon we would hike our prices by Rs 10 per bag as against the loss of Rs 15-20 per bag that we are facing," he said.
On the decline in price due to excess capacity addition, he said, "I don’t believe that price decline would be as high as 20%. The demand would grow looking at the infrastructure growth and the oversupply would affect only 3-4 months."
"In the northern and the western region, prices cannot be increased due to oversupply, which would start from December 2009 and continue for the next one-and-a-half years. They will have to cut prices by Rs 10-15 per bag," he said.
In the southern market, industry experts believe that extra capacity additions would come from March FY10 and result in price cut of around Rs 15-20 per bag.
In the South, India Cements, Mysore Cement, Ambuja and Ultratech have announced their expansion plans, which will start from fiscal 2010.