Cement prices seen up 10% in 6 months

Exports may rise 50 per cent on increased demand from Gulf

Domestic cement prices are expected to rise by over 10 per cent in the next six months, while the uptrend will last for another three years due to the buoyancy in local demand and rising exports.

Another factor which will prop up prices is the negligible capacity addition in the local cement industry in the recent past.

The current average domestic price of cement is around Rs 160 per 50 kg bag which is expected to go up to Rs 180 in the next six months.

With the increasing international demand, cement exports are expected to grow by over 50 per cent.

"After the 9/11 attack, most of the big investors in the Gulf countries, who used to pump in money in real estate and stock markets in the US and Europe, have started withdrawing their investments from those countries and become active in the infrastructure projects in the Gulf region. This has caused major rise in cement demand in the region," said Hemant Pandey, senior vice-president, Sanghi Industries Ltd (SIL).

"SIL has the world's largest cement plant with an installed capacity of four million tonne. The company has stopped taking exports orders till 2006 because of optimum capacity utilisation at its plant. The company plans to double its capacity to over eight million tonne by investing over Rs 700 crore to meet the increasing exports demand," said Pandey.

Reconstruction activities in Iraq is another reason for the spurt in international cement demand. With India's close proximity to the Gulf region, most of the cement demand from that region is met through exports from India.

India accounts for over 40 per cent of the cement exports to the Gulf countries.

Major infrastructure development work in India taken up by the private and public sector has caused buoyancy in local demand also.

According to an industry expert, the installed capacity of the cement industry (large plants) in India has shown a marginal increase at 147.68 million tonne as on April 30, 2004 compared with 146.38 million on March 31, 2003.

The capacity utilisation in India is estimated at around 80 per cent. Over 117 million tonne of cement was produced during the financial year 2003-04 as compared with 111 million tonne last year, which is a growth of over five per cent.

"Similarly dispatches also grew by 5.48 per cent from 111.07 million tonne to 117.16 million tonne during the same period. Cement consumption, which was pegged at around 114 million tonne during the financial year 2003-2004, is expected to increase by 10 per cent to over 125 million tonne in the current financial year. This will surpass the effective production causing the price rise. Gujarat, with a 8.10 per cent share, is the third largest consumer of cement in the country. Maharashtra and Uttar Pradesh registered largest consumption with share of 14.03 per cent and 12.6 per cent, respectively," he said.

The three largest producers of cement during April 2004 were Rajasthan at 16.19 lakh tonne, followed by Madhya Pradesh at 13.02 tonne, and Andhra Pradesh at 11.6 lakh tonne.

Gujarat, with a share of 9.74 per cent in the national output, stood at the fourth position.

"The railways should have a separate logistics department, which could work out offering volume discounts, bulk booking incentives and other offers to benefit the cement industry," said Pandey.