Cement prices, which have risen 15% during the fiscal so far against a 6.3% rise in demand, are set to stabilise and may remain firm during the peak season till monsoon.
Margins, however, are likely to remain lower for the current fiscal and are seen falling in the next.
Average cement prices have increased to `276 per 50-kg bag from `240 since April, mainly due to production cuts in the southern market, which also saw maximum increase in prices, according to research note by ratings agency Crisil.
Reflective of this production discipline, average all-India capacity utilisation for the full fiscal 2012 is expected to be 74%, significantly lower than 78% achieved in the last fiscal.
Ajay D’Souza, head, Crisil Research, expects operating levels and margins to further fall to 72% by the next fiscal-end as new capacities comeonstream.
“We expect the operating margins to decline to 19% in fiscal 2012 as against 20-21% in fiscal 2011. They could dip further to 17% in fiscal 2013. These margins do not factor in any changes in coal prices, as we are yet to now how will they play out April onwards. Coal India Ltd had rolled back prices based on its new mechanism but is expected to revisit it in April,” said D’Souza.
According to a Fortune research note on the cement industry, an estimated 18.4 million tonne per annum new clinker capacity would be commissioned in fiscal 2013.
In the short term, cement prices are expected to remain stable at the current level up to April. However, marginal discounts of close to 2% to 5% are expected in March on account of year-end stock clearance. Cement companies may roll back these discounts in April. On a regional basis, all markets, except South India, have started seeing price rise.
Ankur Kulshrestha, analyst, Fortune Group, in a research note on Monday, wrote, “Cement prices in Delhi rose by `15 per bag over the past one month, while they remained stable in other markets of North India. Similarly, prices in central Uttar Pradesh also witnessed a hike `10-20 per bag. In the eastern markets, price rise has been around `15-30 per bag over the past one month and Mumbai and Gujarat in the western region also increased by `15-25 per bag and `10-20, respectively.”
The last quarter of a fiscal, spilling over to April-May till the monsoon sets in is typically the peak season for the cement industry. Major construction work in the infrastructure sector is expected to drive cement demand during this period.
However, D’Souza from Crisil expects the region to show signs of a price correction in the next fiscal as supply rises.
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