Market research firm Crisil today said cement prices in the country are likely to fall by 2-3 per cent during the 2010-11 fiscal due to surplus supply.
The prices of the construction material are, however, expected to rise by 5-6 per cent in the next financial year, Crisil said in statement.
"The decline in cement prices will be brief and is unlikely to last beyond the end of 2010-11. This is unlike past dips that have usually lasted for at least two years," Crisil Research Head Ajay D'Souza said.
According to the study by Crisil, about 50 million tonnes of cement capacity is expected to be added in 2010-11.
"Capacity additions continue to outpace demand growth, leading to an expected 6-year low in operating rates at 78 per cent, which will drive the dip in cement prices," it added.
The operating margin is also expected to decline to 22-24 per cent in FY11 due to lower prices and the "inability of players to pass on the increase in costs".
Crisil, however, hoped that prices will recover in the next fiscal as the pace of capacity addition is expected to slow down and only about 35 million tonnes of cement capacity will be commissioned in 2011-12.
"Cement prices are expected to recover by 5-6 per cent in 2011-12, thanks to slowing capacity addition and sustained demand growth. Consequently, industry operating margins will likely improve to about 26 per cent in 2011-12," it added.
It said the future improvement will be fuelled by demand from rural markets and the government's continued thrust on infrastructure development.
"Driven by strong demand-supply fundamentals, industry operating rates will bounce back to 82 per cent in 2011-12," Crisil said.
