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Cement firms hike prices even as expansion plans come to a grinding halt

Two of the top three cement producers - UltraTech Cement and Shree Cement - have so far indicated they will go slow on certain expansions

cement
JK Lakshmi Cement and Shree Cement have placed some planned expansions on hold
Amritha Pillay Mumbai
3 min read Last Updated : May 27 2020 | 2:51 AM IST
Capacity expansion for cement companies has come to a grinding halt. This has not prevented companies from hiking prices — a trend likely to continue in 2020-21 (FY21).

Two of the top three cement producers — UltraTech Cement and Shree Cement — have so far indicated they will go slow on certain expansions.

JK Lakshmi Cement and Birla Corporation have placed some planned expansions on hold.

LafargeHolcim Group’s ACC and Ambuja Cements are yet to officially announce any deferment. However, analysts expect some projects to be put on hold.

For almost a decade now, the Indian cement industry has been home to more supply capacity than demand. Before the pandemic, the industry’s demand-supply mismatch was expected to narrow in FY21 and the years ahead. The Covid-19 demand destruction, however, has postponed new capacity additions and the possibility of a diminished demand-supply gap.

 

 
“The expectation was the industry would add 40-50 million tonnes (mt) between now and 2022-23-end. While it is logical that companies will halt their capital expenditure for some time, I do not expect permanent deferral. The 40-50-mt addition will be delayed by a year. The demand and supply gap will continue despite the deferred capacity addition. It is too early to predict whether the gap will widen for FY21,” said Nitin Bhasin, head of equities research, Ambit Capital.


In contrast to the new demand scenario, all markets in India saw price hikes in May between Rs 10 and Rs 70 per bag, depending on the regional market.

Analysts expect cement companies to protect margin over volumes and this price trend to continue. “With Covid-19 impacting demand, I expect cement companies to maintain price discipline and not resort to aggressive discounts,” added Bhasin.

Analysts with Motilal Oswal in an April 30 note said they expect cement prices to improve 1-2 per cent year-on-year in all regions for FY21, barring the East, where prices are expected to decline. In its report, the brokerage firm pegged India’s cement capacity at 489 mt for 2019-20, while consumption was at 331 mt.

A top executive from a major cement producer earlier noted companies will look at selling cement at above break-even prices. While costs like raw material are expected to decline, those like interest and staff costs due to low capacity utilisation are expected to hit companies hard.

For the cement price hike seen so far in May, the southern markets saw the highest rise. The average price for a 50-kilo cement bag in Hyderabad rose to Rs 305 in May, from Rs 230 in April. A similar rise was seen for the Chennai market at Rs 410 in May, from Rs 360 in April.

Topics :CoronavirusLockdowncement firmsShree CementJK Lakshmi Cement