The domestic cement industry, which is witnessing a margin erosion, may not pass on the benefits of the recent fall in raw material prices to the consumers. The 204 million-tonne industry is under pressure due to excess capacities coming onstream across the country.
Imported coal prices, which touched $200 a tonne in the first half of the current financial year, have now come down drastically. With crude prices hovering around $70 a barrel, the packaging cost is also expected to ease.
Coal is an important raw material for cement production. Owing to its historically high prices, majority of the cement companies saw their profit margins shrink in FY09 so far.
According to industry analysts, "Cement-makers will not pass on the benefits as they would like to maintain their falling margins, which, in some cases, have dropped to 25-26 per cent from 38-40 per cent last year."
The overall demand scenario for cement is gloomy, and simply slashing prices will not help, they added. Capacity utilisation has also dropped to a little above 80 per cent against 95 per cent last year.
For instance, southern major India Cements, which imports 80 per cent of its coal requirements, will benefit from the falling prices of raw materials. Compared to the September quarter, when imported coal was at $140 a tonne, prices of the commodity are likely to fall to $125 in the current quarter and further in the last quarter, executives of the company said in a conference call this week.
"Since raw material prices are going to be low and demand in the South is robust, cement will remain firm and we will try to move our prices up," they added.
R C Gupta, president, Mangalam Cement, part of the B K Birla group, said, "Industry will not pass on the benefits in order to maintain margins."
Industry analysts said if demand scenario weakened further, cement-makers would need to sell their produce and then we could see discounts.
At present, the average price of a 50-kg cement bag is Rs 225, though in some regions, especially in the north-west and eastern parts of the country, prices have slipped below Rs 200.
