Cement prices have shot up 10 per cent since September-end to an all-time high of Rs 280 per 50-kg bag.
Prices rose six per cent last month, from Rs 255 at the end of September, and another Rs 5-15 this month. Industry experts say prices may inch up more, as peak construction period sets in. After the Union Budget, prices had surged to a high of Rs 275 before subsiding to a low of Rs 240 during monsoon.
Interestingly, prices are rising when the industry is heading for another low-growth year after growing at a decade low of less than five per cent in 2010-11.
Sales rose a mere 2.63 per cent to 122.56 million tonnes in April-October, compared to 119.4 mt during the same period last year.
Last month, the industry failed to grow and slipped into the negative territory, as sales volume declined by 0.7 per cent. This was the third month in the year after April and May, when sales registered a fall in growth.
“After the festive season, construction activity and consequently, cement demand will gain traction, which could lead prices to rise by one-two per cent on a month-on-month basis in November,” said Ajay D’Souza, head, Crisil Research. He expects the overall growth in demand for 2011-12 to be around six per cent.
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So, when demand and utilisation are poor, what’s catapulting the building material’s prices?
Analysts say the price rally is not a function of demand in the current scenario. “It’s a disciplined supply approach and more importantly, the rising input costs are driving the prices up,” explained a research head of a city-based brokerage house.
Even cement makers admit it. According to the president (finance) of a South-based player, “Demand is abysmal across the country. But cost pushes have made us pass on the prices to end consumers. If input costs do not subside, we will continue to pass on any increase to customers.”
According to A K Saraogi, chief financial officer of Kanpur-based JK Cement, “We should be at least recovering our costs.”
Agreed S Sreekanth Reddy, executive director of Andhra-based Sagar Cements: “One cannot keep making losses for long at a time when margins are getting screwed.”
After Coal India raised the price of coal by 30 per cent in February, freight costs, too, have moved up. In India, around 45 per cent of cement produced is transported by rail and the rest by road and to a limited extent, by sea on the western coast.
Region-wise, India’s central market has the lowest cement price at Rs 260 a bag. However, the eastern market is leading, with an average price of Rs 303, while in the South, prices are hovering around Rs 290. In the North, the commodity is being sold at Rs 280 a bag, while it is available at around Rs 270 in the West.
But experts do not see higher prices would have a substantial impact on companies’ bottom lines. “Margins will continue to be under pressure this year,” said D’Souza. Analysts say the price rise will only take care of the operating costs of cement companies and won’t add much to their profitability.