India: Cement prices start firming up

India: Cement prices start firming up
Published: 05 December 2007

Prices seen rising in Jan; Rs 5 per bag hike in western markets already.

Cement prices are seen picking up from January, traditionally the busiest season for construction activity.
So far this quarter, prices of the commodity have been sluggish across the country and have in fact fallen in the northern and southern markets. However, beginning this week, prices in the western markets have gone up by Rs 5 per bag, following which, wholesale prices in Maharashtra have risen to Rs 245-250 per bag.
Prices in the rest of the country are expected to go up from the next month.

In the South, a slowdown in infrastructure and irrigation projects has created a surplus scenario in the region, leading to retail prices seeing a 3-5 per cent correction. This could change.

In fact, cement companies in Andhra Pradesh plan to raise prices by Rs 5-7 per 50 kg bag from this week itself to compensate for sales to the state government at a discounted price as part of a social sector commitment. From next week, wholesale cement prices in the Andhra Pradesh will be around Rs 233, retail prices at Rs 243 and institutional prices at Rs 223 per 50 kg bag, an industry source said. The state had witnessed a 26.3 per cent YoY growth in demand, fuelled by irrigation projects, government housing projects and huge complexes being built by private players like Raheja and DLF, among others.

A K Saraogi, chief financial officer, J K Cements said, "Firms need to hike prices further to protect margins as cost pressures are beginning to hurt. We are facing cost pressures as fuel cost (petroleum coke and coal) has gone up."

On pricing, Saraogi said a hike of Rs 5 per bag early next year was a possibility, but much would depend on the demand and supply scenario.

Alok Sanghi, director, Sanghi Industries, too, declined to specify when prices would be hiked, but said the company expected demand to improve in January.

Manish Balwani, cement analyst with Emkay, also expects prices to go up further as increased demand leads to a shortfall in supplies by January.

Analysts Satish Kumar and Abhinav Sharma of Lehman Brothers Equity Research said in a note to clients on November 23 that consistent strength in international coal prices will continue to impact the profitability of Indian cement companies in the current quarter.
Large cement companies have seen an increase in their power and fuel costs in the second quarter largely on account of the high prices of coal in international markets, the analysts said.

Industry insiders, though, feel the rising demand from the infrastructure sector will ease the pressure on prices over the next few years. According to them, the housing sector accounts for 65-70 per cent share of total demand and will continue to remain a major contributor. The infrastructure and industrial sectors account for the rest of the demand.

Meanwhile, the government is gearing up to ensure that cement prices are not artificially hiked. It is holding meetings with cement companies and is taking stock of the demand-supply situation in the market.
MMTC has been directed to import cement to ensure adequate availability of the building material in the domestic market.

Last week, Ajay Shankar, secretary in the department of industrial policy and promotion said cement prices will remain at a reasonable level owing to capacity addition by the industry coupled with a liberal import policy.