INDIA: Cement prices in the South to rise from Sept 20

Cement prices in south India are set to go up from next week for the second time in a fortnight.

Prices are set to rise by Rs30 per 50kg bag in Chennai from Monday, dealers said.

“From Monday the prices for retail would be Rs260 per bag, wholesale Rs250 per bag and for the builders they would be Rs220 per bag,” a dealer said.

In the last 15 days, the prices have risen by Rs60-70 in Andhra Pradesh, Rs50 in Tamil Nadu, Rs50 in Karnataka and by `40 in Kerala, despite weak demand and excess supply.

Rupesh Sankhe, research analyst with Angel Broking, said, “Prices will go up more in Chennai because the demand is good there, and also that the freight price is captured in it. But the question is how the companies would be able to raise prices so much. Fundamentally there is no demand; this is more of manufacturers giving out a market indication that the pricing will not be demand-led.”

An analyst with a domestic brokerage said, “Cement companies had increased prices in May citing power shortages but they fell in June and July. Now they are increasing prices because they don’t want to face losses anymore. Most of the players in South are facing losses on a daily basis or are running close to their variable price of Rs135.”

“They had reduced prices to sell in a depressed market, but now they want to artificially hike prices,” the analyst said.

The stock market has taken it positively because the cement companies are signalling that they don’t want to make losses anymore, the analyst said.

According to dealers, the demand in Chennai is good as the post-monsoon season is close.

Though most of the analysts are sceptical whether the price hikes would yield better results, they said it is a positive trigger for stock markets, at least.

An analyst from an international brokerage said, “The price hike is more in Chennai than Andhra Pradesh, which is around Rs20 per bag. But it is very difficult to say whether these prices would sustain. But the manufacturers are making an effort to indicate that they wouldn’t sell at loss, which the markets are appreciating.”

Cement demand in southern region in fiscal 2010 was 57 million tonnes (mt) and it has a capacity of 90 mt and in fiscal 2011 the demand in expected at 67-68 mt with an installed capacity of 110 mt, translating into an utilisation rate of 60-65%.