Cement makers brace themeslves for bumpy ride

The road ahead for cement industry in the new fiscal may not be as smooth as it was in 2009-10, with rising manufacturing cost and supply exceeding demand.

The fall-out, which is likely to be felt more acutely once the peak period of cement consumption ends with the onset of the monsoon, is squeezed margins given the cut-throat competition.

The cost of manufacturing cement has escalated by Rs 20 for a 50 kg bag with the rise in input and freight costs in recent times. However, in the over-supplied domestic market, they fear passing the entire burden to consumers.

"The cost push on cement and clinker is Rs 20 a bag. But, it is the market which will determine whether cement makers will be able to pass it on to the consumers," R G Bagla, Group Executive President, J K Cements, told PTI.

"The price of cement is determined by the market. It is a case of demand-supply. However, if the cost goes up, cement makers will try to increase the price," A L Kapur, Managing Kapur, Ambuja Cements said.

Rating agency Fitch had, in a recent report, said that the country is adding about 50 million tonne cement capacity in 2010 taking the total to around 300 MT resulting in shrinking of capacity utilisation of the industry further down to 75 per cent from around 87 per cent in 2009.

The profitability of most producers would thus come down further in 2010 from the high seen in mid-2009 as coal and freight costs have risen.

Domestic cement manufacturers ended the fiscal 2009-10 with a double-digit growth with leading players like, Aditya Birla Group clocked 15 per cent growth in sales in the fiscal at 37.22 MT as against 32.34 MT in 2008-09.

Shree Cement, the largest maker in the Northern region, registered a 20.66 per cent year-on-year growth in sales at 9.36 MT in 2009-10 as against 7.75 MT in 2008-09. Jaiprakash Associates' sales went up by 47 per cent to 11.21 MT vis-a-vis 7.64 MT in 2008-09.

According to Cement Manufacturers' Association, cement sales were up by 12 per cent during April-February period of the 2009-10 fiscal at 143.67 MT as against 127.79 MT in the corresponding period in 2008-09.

India's annual demand for cement was 149.7 MT in FY'07, 164.4 MT in 2007-08 and 178.2 MT in 2008-09.