According to a research head with a Mumbai-based foreign brokerage, "Demand is growing at 10 per cent annually, while capacity addition is happening at 5-6 per cent, which is putting upward pressure on cement prices."
The outlook appears to be bullish till FY09, when the first signs of price reversal might show, on the back of strong fundamentals. The industry had announced an addition of over 70 million tonne of capacity to be implemented in FY07 to FY09. Analysts said prices may fall next year as additional capacities come into play.
However, most of the projects are getting delayed owing to problems in land acquisition and regulatory hurdles. Smaller firms are better placed compared with their larger peers on capacity addition. According to analysts, the demand-supply gap would help the companies record better margins and robust cashflows.
They said that global cement companies would have to pay a decent premium to acquire even a small, regional firm.
However, the disturbing fact for the government is that prices are expected to go up further, which will put pressure on inflation. Unnerved with the possibility of rise in cement prices, the government is taking wrong steps to curb inflation. For example, its decision to abolish countervailing duty from 16 per cent and additional customs duty from 4 per cent on imports will have no impact as we do not import cement in large quantity, " said a top executive with a diversified group.
