After the cement prices remained firm during the first half of the year, backed by robust despatches, the commodity prices are set for a correction in a month’s time.
With around 45 million tonne (mt) capacity coming up this fiscal, and with the monsoons setting in, the prices can go down Rs 3-10 for a 50 kg bag, feel insiders. The southern and western regions should see the maximum corrections while prices in East and North are likely to be more or less stable. India presently has an installed capacity of around 224 mt.
Prices are now down Rs 2-3 a bag due to the seasonal demand slump seen during monsoons, confirmed Vinod Juneja, managing director, of Binani Group of Industries that owns Binani Cement. As for southern India, where additional capacity to the tune of around 60 per cent of its existing capacity is coming up, the prices could be down Rs 5-10 a bag starting August, felt a Mumbai-based analyst. “The price cut may not be announced at one go. The cuts could be in sequences,” he added. Presently, the region has the highest price of around Rs 275 a bag. Around seven to eight million tonne capacity has come onstream in the first quarter of the fiscal, said Pawan Burde, an analyst with Mumbai-based Angel Broking.
H M Bangur, president of the Cement Manufacturers’ Association(CMA) and managing director of north India’s leading cement player, Shree Cement, however, is of the opinion that the Budget’s thrust on infrastructure should push demand and hence keep prices firm. “The construction activity for the Commonwealth Games just around the corner will start now. Together with it, there will be additional demand created by the rural infrastructure projects and the industry has already created capacity so that there is no shortfall in supply,” Bangur said.
The Builders’ Association of India (BAI), however, felt there would be no immediate surge in demand. “While the Union Budget has announced a 23 per cent increase in outlay for infrastructure, there is an entire process involved and it would take some time for the projects to take off,” said R M Bhatia, vice president of the BAI. He alleged that the cement manufacturers could underutlise capacity to keep the supply side weak.
Bhatia, nonetheless, confirmed that prices in the west zone were down Rs 3-5 a bag and further corrections were expected in the coming months.
Cement prices were around Rs 250 a bag in the Mumbai region now.
The Union Budget 2009-10 has allocated Rs 3,973 crore making provisions for housing and for providing basic amenities to the urban poor with the aim to make the country ‘slum-free’ in the next five years. The allocation for the Indira Awaas Yojana has been stepped up 63 per cent, to touch Rs 8,800 crore, while Rs 2,000 crore has been allocated to the Rural Housing Fund in National Housing Board.
Sources in Ultratech Cement indicated that while prices should at least remain stable for the next 15 days, there could be a correction after that. He said, “While demand in the east is up by around 15-18 per cent during the first few months of the fiscal, cement despatches from west zone players has also improved the supply situation.” Analysts, however, felt that prices in the east and north should remain relatively flat.
In Kolkata a cement bag now cost around Rs 272 with some price hikes in the recent past, while in north it was more or less stable at Rs 235 a bag for sometime now. North India also gets supply from Pakistan and makes up nearly 5-7 per cent of the demand in the region. A tonne of Pakistani cement now costs between Rs 2,700-2,900. Adding the transportation cost to Amritsar or Delhi from the Wagah border, that is roughly around Rs 40-45 for a 50 kg bag it works out to Rs 180-193 per bag, far below the average domestic price of Rs 245-260 a bag.
