Cement set to stay on a sticky wicket

Cement prices in the domestic market are all set to decline further in 2009. Market players, dealers and industry analysts say that a dip of around Rs 15 on every bag of 50 kg is on the cards.

The factor responsible for this is the lower-than-expected growth in GDP, which will affect the demand for cement. Since the industry will have an installed capacity of over 220 million tonnes (MT) in the first few months of the next year, market players do not rule out supply exceeding the demand. “This, in turn, will put pressure on cement prices,” they say.

At present, the average cement rates are ruling around Rs 220 a bag. Cement makers had reduced prices in the range of Rs 2-4 a bag in the first week of December. And, with the excise duty cut of 4 per cent, prices across the country have been slashed further by Rs 4-6 a bag. Being a regional commodity, region-specific supply and demand scenario plays a vital role in deciding cement prices.

Cement in the northern market is being sold at around Rs 205-225 a bag. The eastern market, which saw the steepest dip in November, has still not recovered with current prices ruling as low as Rs 210 a bag.

In the western India, prices have come down to around Rs 215-240, whereas in the south, the going rate is in the range of Rs 230-250 a bag.

Amrit Lal Kapur, managing director, Ambuja Cements, says, “The cement industry’s growth rate cannot be more than 7-8 per cent next year. Prices will further collapse. The worst has not hit us as yet. The real impact of the new capacities is yet to be seen in 2009-2010, making life difficult for the industry. There will be no surprise even if some of the companies go into the red.”

Acknowledging the fact, Sanjay Ladiwala, president of the Cement Stockists & Dealers Association of Bombay, says, “I see a further dip of around Rs 10-15 a bag next year.”

Expressing similar views, industry analysts say, “There is no doubt that prices will be under pressure as more and more capacities go onstream.”

April-November 2008 has seen a demand growth of around 7 per cent in the country. “Maintaining this growth rate will in itself be a big challenge for the industry,” says Pawan Burde, an Angel Broking analyst.

Sumit Banerjee, managing director, ACC, says, “The worst is still to come. But I believe that the first half of 2009 will be better than the second half as the momentum of construction will pull through the first few months.”