INDIA: Cement prices rise 50% in Bihar as supplies fall

In past few months, cement prices in the eastern state have jumped almost 50% due to fall in production from one of the biggest suppliers, even as construction activity continues to boom across the state.

The eastern state, which does not have any major cement producing plant and relies on supplies from plants located in Satna, Madhya Pradesh, is grappling with an unprecedented rise in cement prices, which have surpassed that in Gujarat, one of the largest cement consuming states in India.

Compounding the situation is the shutdown of a unit of Prism Cements in Satna, which has a significant share in the Bihar market.

Replying to queries from ET, a Prism Cement spokesman said, "Clinker production in Unit II at Satna will be temporarily suspended as there has been damage to the blending silo. Cement production and dispatches shall continue.

Also, operations, both for clinker and cement, at Unit I at Satna continue to be normal." Prism has the capacity to make 5.6 million tonnes a year.

Hari Kishore Singh, a cement stockist in Patna, said he is currently selling cement at about Rs 365-385 for a 50 kg bag. The price of the same bag used to cost Rs 230-250 two months ago.

"There is a supply shortage in this peak construction season, so prices have gone up. Companies are making good profits," Singh told ET.

Ishan Kumar Jain, who owns Sarvottam Cement Stores in the city's Zero Mile area, says this price rise is unprecedented. "We used to see an increase of Rs 30-40 on a bag around this time every year as construction activity goes up before the monsoons...but this is unusual."

Sensing opportunity, Prism's competitors such as ACC and Ultratech, which have units close to Bihar, especially in Satna belt, have shifted focus to this market.

"This is the first time that there has been such a quantum rise in prices and most of the plants in MP are now rushing to sell in Bihar," said a senior executive of one of the companies who asked not to be identified.

Over the past two years, the state's demand for cement has been rising steadily by about 25-30%, double the country average. Prices in other fast growing states such as Gujarat have grown barely 8% in the same period.

The state's deputy chief minister and finance minister Sushil Modi says cement demand is at an all-time high because of the flurry of construction activity and infrastructure projects across the state, which is gaining pace now. "This is evident from tax collections from the cement industry, which has grown significantly over the months," he says.

Unlike other commodities, cement is a regional product, which cannot be transported over large distances to be sold in lucrative markets, as the freight element accounts for a major part of total cost. This prompts most companies to sell within a radius of 300 km of their plants.

Most of the cement sold in Bihar comes across the border from neighbouring states such as Madhya Pradesh and Jharkhand, which have large players such as UltraTech, ACC, Heidelberg, Prism, Century and Birla Corp, apart from a host of smaller players.

Refusing to talk about cement demand in specific areas, ACC chief commercial officer Jayanta Datta Gupta said, "With the large allocation of funds to the infrastructure projects as proposed in the Budget and reasonably good demand in housing sector in semi-urban and rural areas, we expect cement demand to grow between 9 -10% in the current year."

While prices in rest of the country have also firmed up, the average increase in the traditionally strong cement consuming states of Gujarat and Maharashtra has been about 10-12% and mainly as a pass-through for important cost elements such as rail freight and coal. Typically, freight and coal together account for almost half of the total cost of making cement.

"There has been a sharp rise in cement price in Bihar, but most of it is largely due to infrastructure projects that typically start before any elections," said Nikhil Saboo, a cement analyst with Kolkata-based SKP Securities.

The prices are also likely to stay firm as there is slow pace in capacity additions across India, which is coinciding with peaking of interest rates and improvement in demand from housing segment. "Typically, the November-May period is considered to be the peak season for cement consumption before it slows down in monsoon," said Emkay Global analyst Ajit Motwani.

"Also, labour for construction in various infrastructure projects is available only till April. After that, it is difficult to get work done as most labourers shift to agriculture," he added.