ACC, Ambuja and Dalmia Cement may fail to raise prices, given the fresh capacities coming on stream, resulting in an oversupply of the commodity.
Recent reports suggested that these companies would go for a hike of Rs 20 or above for a bag of 50 kg due to escalating input costs.
Industry analysts, however, said it would be difficult to raise cement prices as there would be an excess of the commodity in the market as a result of fresh units coming up despite companies lowering their capacity utilisation.
The country is expected to see an excess cement of around 10 million tonnes over the actual consumption in 2008-09.
The industry, with a capacity of 198.62 million tonnes as on March 31 this year, is expected to add around 70 million tonnes by the end of FY10. Of this, 30-35 million tonnes are to be added in the current financial year alone, said the Cement Manufacturers’ Association.
“With higher capacities, cement prices are expected to come down. Cement-makers will have to bear the brunt of rising costs as it is difficult to raise prices in such a scenario,” said Ajay D’souza, head (research), Crisil.
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Apart from economic factors, the government pressure may also not let companies go their way in raising prices.
Cement-makers too share the view of analysts. Vinod Juneja, the managing director of Binani Cement, said, “Due to supply and demand factors, it is not possible to go ahead with a price rise.”
Concerns of oversupply, a restricted increase in cement realisation, declining operating margins and de-growth in profitability will continue to hamper the performance of companies for the next 12 to 18 months.
“When substantial capacities build up, there are losses,” said H M Bagur, managing director, Shree Cement. At the annual general meeting of UltraTech, the country’s second largest cement-maker, Kumar Mangalam Birla had said new capacities would take their full effect in FY10 and prices would be decided by market forces.
In a recent interview with Business Standard, A L Kapur, managing director, Ambuja Cements, had said in the present time, when everybody wants to capture the market share, “prices are bound to collapse”.
According to another Mumbai-based analyst, a price hike, if it did happen, could not be to the extent of Rs 20-25 a bag. “It could be around Rs 2-5, that too based on the cost increase,” added the analyst. Other experts believe that companies would only attempt to raise prices in the next two to three months.
“As as soon as new capacities stabilise, they cannot even try as prices will collapse,” they added.