Marginal increase in cement prices likely, India

Marginal increase in cement prices likely, India
Published: 02 January 2008

Cement prices may see a marginal hike next year despite input costs going up, say industry executives and analysts. This is because of new capacities coming on stream and also government’s unwillingness to accept a higher inflation rate close to general elections slated for mid-2009. The average cement price, which at present is around Rs 241, moved up 7% in 2007. The hike is expected to be lesser next year. 
 
"The government’s close watch on cement prices is likely to restrict pricing power of the Industry," says a cement analyst with broking firm ICICI Direct Rupesh Sankhe.  
 
The cost of inputs (coal, freight) has increased by 5-6% in 2007 and may go up marginally next year, which is likely to reflect in higher cement prices. Shree Cement MD and Cement Manufacturers’ Association president HM Bangur says, "It’s not possible to predict today which way prices would go. The cost may go up next year, but we don’t know if we can successfully pass on the extra cost to the consumers".  
 
Cement sector has seen 8-9% growth so far this year and Mr Bangur believes, the industry would grow at 11% next year. Adds Mr Sankhe, "We expect more construction activity on account of higher capital allocation in the 11th plan and government’s focus on infrastructure and housing due to the 2009 election. SEZ and real estate are triggers for cement offtake."  
 
Mr Bangur says there won’t be any shortage of cement next year as 30 million tonnes of capacity is likely to be added in the calendar year 2008. Given the past record, the target looks quite ambitious. So far this year, only 7 million tonnes of capacity has come on stream since April as against the proposed addition of 28 million tonnes. At present, the capacity stands at 173 million tonnes. Mr Bangur says, "When we announce any new project, we take the best possible scenario in mind. So delay is not something unusual."  
 
"Delays in environment clearance, allotment of limestone mining lease and difficulties in land acquisition especially after Nandigram and Singur incidents have contributed to delay in implementation of the cement projects," says JK Cement group executive president RG Bagla.  
 
The cement industry has seen an overall growth of 23% in sales and 48% in net profit for the three quarters of the calendar year. Meanwhile, cement exports have declined between April and November this year by almost 40% to 2.54 million tonnes. Rupee appreciation, capacity addition in the Middle-East which has resulted in lower realisation and cement makers’ intent to retain their market share in the domestic market have led to export decline.  
 
The government’s move to remove all duties on cement to facilitate its import hasn’t had much impact on the sector. Imports will not exceed 2 million tonnes annually due to logistic constraints, says Mr Sankhe, adding that it will not have any significant impact on domestic demand-supply situation.