INDIA: Cement prices to rise further

Companies may increase prices by Rs 5-10 per bag due to rising raw material prices.

Reeling under high raw material costs, cement makers may further increase prices by Rs 5-10 per bag — the fourth price rise after Diwali, with cement already costlier by 10-12 per cent.

“While fuel input costs have risen by around 50 per cent over the last year, logistics’ costs have also gone up due to indirect increase in the cost of rail transportation following an increase in demurrage and wharfage charges. Power and fuel account for nearly 60 per cent of the variable costs,” said Shailendra Chouksey, director, JK Lakshmi Cement.

Chouksey said the industry needs to push cement prices up to address the increase in input costs.

The industry is passing through a demand-supply adjustment cycle, with a rise in demand after the Commonwealth Games. “There has been a 9-9.5 per cent increase in demand in the last quarter, on a quarter-on-quarter basis. There has also been two sets of price increases in January. Another round is expected soon,” said Sanjay Ladiwala, president, Cement Stockist and Dealers’ Association of Bombay.

Input costs for all raw materials are rising and analysts feel it would put pressure on the operating margins of the companies to the range of 4-9 per cent over the next two years.

While reduced coal linkages will force companies to buy from the costlier open market and through imports, rail freight rates have gone up by four per cent from December 2010.

Imported coal is up 50 per cent in the past quarter and open market coal prices are surging. Besides, cost of other inputs like gypsum, fly ash and slag is also expected to go up by 10-13 per cent on a year-on-year basis.

Capacity build-up over the past two years has also resulted in a steady drop in capacity utilisation, from 80 per cent in the first quarter to 69 per cent in the second and 71 per cent in the third quarter of the current financial year. The average capacity utilisation for FY11 plunged to 74 per cent, against 85 per cent during the corresponding period last year.

The net cement capacity in India is 265 million tonnes, with another 35 million tonnes expected to come up in 2012-13.

“We feel cement makers are forming cartels and pushing prices up artificially. This adds to the total cost of construction. We demand a separate regulator for construction material suppliers and manufacturers to keep a check on such unhealthy practices,” said Jaxay Shah, president (Gujarat), Confederation of Real Estate Developers’ Association of India.

Cement manufacturers, on the other hand, argued there has not been any major infrastructure project after the Commonwealth Games last year, and the dip in capacity utilisation is translating into the present demand situation.

Prices in Mumbai are in the range of Rs 258-260 per 50 kg bag, while in the rest of Maharashtra, it is slightly lower at Rs 240-250. In Tamil Nadu and Andhra Pradesh, prices are Rs 220-230 a bag, but in Chennai it is more expensive, at Rs 260 a bag. Prices in Kolkata are around Rs 240 per bag and in the northern part of the country, Rs 210 a bag.

However, infrastructure projects being developed now may not be affected by the rising prices.

“This is because most of the projects are covered by the escalation clause under the construction contract. This applies to key inputs like cement and steel,” said R Balarami Reddy, director (finance), IVRCL Infrastructure & Projects Limited.