The construction industry is being adversely affected by the increase in cement prices, led by the demand surge on the back of the public sector infrastructure projects.
Real estate developers, already reeling under the pressure of poor demand, claimed that margins were hit by at least five per cent, even though steel prices had softened over the last six months. Cement prices have increased by up to 10 per cent.
However, the infrastructure industry is also facing cement shortage, and several companies working on a public-private partnership (PPP) model, are now seeking additional funds from the government to meet the increased cost.
"In the last three-four months, cement prices have gone up by up to nearly 30 per cent in some areas, and as a result the cost of projects have also appreciated. Consequently, several companies are required to make separate claims with the government to factor in the increased prices. In most cases, the additional fund sanctions takes a long time," said a senior official at Kolkata-based construction major Simplex Infrastructure. While confirming the rise in demand from realtors and the infrastructure sectors, Vinod Juneja, managing director, Binani Cements, denied that there was a 30 per cent rise in the price of the commodity. "While demand from realty is up by around five per cent, demand from the infrastructure sector is up by around 9-10 per cent in the last three months. On top of this, there is an issue of wagon shortage in western India that has resulted in a seven to eight days delay in delivery," he said. Despatches have gone up by 9.15 per cent between January to March 2009 on a year-on-year basis, showed data from the Cement Manufacturers' Association(CMA). H M Bangur, president of the CMA and managing director of Shree Cement said that while demand had risen, production had also gone up by around 10 per cent in the last quarter.
In the period from August 2008 to January 2009 alone, the government accorded approval for 37 infrastructure projects worth Rs 70,000 crore.
In addition, under the public private partnership (PPP) mode, 54 central infrastructure projects with a total project cost of Rs 67, 700 crore have been given in-principle or final approval by the PPP Appraisal Committee, and 23 projects amounting to Rs 27,900 crore have been approved for viability gap funding in 2008-09.
According to R S Ramasubramaniam, vice chairman, Feedback Ventures, said, demand for cement was likely to have triggered by launch of some mass housing projects by state governments, along with roads and irrigation projects in rural areas.
He said, cement prices had increased by 8-10 per cent in the last few months.
Santosh Rungta, president, Confederation Of Real Estate Developers Association Of India (Credai), also said, "Cement prices have increased by 15-20 per cent in the last few months, mainly because of increased demand from the government sector. Things should stabilise after the elections."
Prices are traditionally high in the last quarter of the financial year, and more so because builders try to finish work ahead of monsoons, said Pawan Burde, an analyst with Angel Broking. "Cement constitutes nearly seven to eight per cent of the cost of a realty or infrasrtucture project. And average all-India prices are up from Rs 237 in December last year to around Rs 245 now. Rising prices have indeed hit the developers", he added.
Prices of cement have gone up the most in central India between December 2008 to March this year, where the price of each 50 kilogram bag is up by Rs10-20. In the West a bag now costs around Rs265,while prices in the east are around Rs 244 a bag and they are the highest down south at Rs 279 for a 50 kg bag.
