Cement prices climb without respite

Up 30% since New Year, though sales growth much below earlier estimate; supply regulation alleged.

Since the Union Budget’s presentation in end-February, cement companies have accelerated price increases. Last fortnight witnessed all-India average prices going up a little over 10 per cent and set to hit Rs 300 for a 50-kg bag soon.

Currently, the all-India cement price is Rs 290 a bag; it was Rs 255 a bag two years earlier. Industry experts said the first three quarters of the current financial year did not see higher profits for companies. In the second quarter, marked by the monsoon, several regional cement makers had slipped into the red, with operational losses.

The Mumbai market again took the lead in raising prices last week.

Cement companies raised their prices, pushed the retail level to Rs 305 a bag. In Kolkata, it is around Rs 295; in the north, at Rs 285. In the south, cement is available at an average of Rs 285 — in Kochi at Rs 315, in Bangalore at Rs 280 and in Hyderabad at Rs 265 a bag.

CEOs of large and mid-sized companies across the region that Business Standard spoke to rejected the possibility of any reduction in prices till May, before the monsoon sets in.

“Cement prices will either go further up or stabilise at current levels. But there is no room for prices to slip,” said the top executive of a company having its operations in the north.

BUILDING UP

• Cement prices rose '30 a 50-kg bag to '290 this fortnight 
• 30 per cent rise in prices in the March quarter
• Companies say no softening of prices till May
• Analysts feel companies regulating supply to maintain rates
• Sales growth so far in FY11 a mere 4.4 per cent
• In November and December, cement sales dipped 5.6 per cent and 2.9 per cent, respectively

During the monsoon period, the all-India price had collapsed to as low as Rs 215 a bag. It rose to Rs 225 in December. But since the beginning of the current calender year, the average price has risen by Rs 65 a bag, or 30 per cent.

The managing director of a west-based cement major justified the price rise. “We did not get any relief from the government in the Budget. Input costs are on the rise and demand, too, has improved, taking prices further up.”

He said manufacturers cannot operate for long at low prices, as it would adversely impact the margins.

However, contrary to companies’ views, industry analysts say the recent surge in prices is “unjustifiable”.

“The recent price hike across the regions is not a function of growth in demand. Rather, it is on the back of the strict supply discipline adopted by the manufacturers,” said the research head of a Mumbai-based broking house.

Another analyst at a domestic brokerage said even after taking into consideration the price implications due to budgetary measures, the rise should not have been more than Rs 4-5 a bag. However, the actual rise is Rs 30 a bag. She added the recent hikes would certainly help companies come up with reasonably good profitability, if they can sustain the higher prices.

The December quarter was marked with a dip in sales on a year-on-year basis in two of its months. In November and December, cement sales dipped 5.6 per cent and 2.9 per cent, respectively.

At the beginning of the current quarter, sales were marginally up by 1.7 per cent. It only improved in February, as consumption grew 7.2 per cent. However, the overall sales growth till date for the current financial year is only 4.4 per cent, not even half of the industry’s previous expectation of a 10 per cent growth in 2010-11.

The current quarter’s capacity utilisation is estimated at 80 per cent, with the effective capacity at 260 million tonnes.