Cement prices may rise by up to 10% in next 6 months on high fuel cost: CMA

'Such a price hike will bring us at the level where we were last year in terms of operating margins'

Cement prices could go up by up to 10 per cent in the next six months in order to compensate for the increased fuel and transportation costs, according to a top official of industry body CMA.

As per Cement Manufacturers Association (CMA), the industry has witnessed 14 per cent growth in the first half of 2018-19-- the first double digit growth since 2009-10 -- thereby providing an opportunity for correction of prices which have remained stagnant for the last six to seven years.

"If not for anything else, there is a very dire need to correct the (cement) pricing. In the last one year we have seen 60-70 per cent rise in cost of fuel. At least to recover some portion of this increase, we need to increase the prices of cement," CMA President Shailendra Chouksey told PTI.

 

He further said cement prices have been "almost stagnant for the last six to seven years" but the cost and normal inflation are "much more than the pricing that we have been able to raise".

There is surplus capacity in the cement industry but no pricing power, Chouksey said, adding even after witnessing pick-up in demand, "prices are still languishing at very very low levels".

In the national capital, a 50-kg cement bag sells for less than Rs 300 at present, he claimed.

"Today, we are selling a cement bag practically at the same price that we sold in 2011-12. That is mainly on account of the huge surplus in the system," he said.

Out of a total of 500 million tonne (MT) capacity available in the industry, only 300 MT is utilised at the moment, he added.

However, with sustained demand, he said there is an opportunity for the industry to correct the prices.

"Hopefully, the next six months is a good period for good consumption by and large and I think that it will be a good period for some possible price corrections," he said.

When asked by how much the prices could go up, he said: "Just for recovering the fuel cost and transportation charges, that itself will call for a minimum of Rs 25-30 a bag, which is about 8-10 per cent increase in prices."

Such a price hike, he said,"will bring us at the level where we were last year in terms of operating margins."

Stating that the health of the cement industry isn't so good, Chouksey said:"We have been seeing that lot of units have been put on the block. It indicates the margins are not very healthy, I think that will continue for a while till such time the prices are corrected."

Asked if there could be more cases of cement companies going for insolvency proceedings, he said: "I would not be surprised if it happens."

Earlier this year, after going for insolvency proceedings, debt-ridden Binani Cement had become a bone of contention between Ultratech and Dalmia Bharat.