The Hindu Business Line : Cement price rise inevitable, say analysts

Spiraling prices
`We expect prices on an average to increase by Rs 20-25 per bag.'
The price revisions at the dealer level in the southern States are expected to be even steeper.

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Mumbai Feb. 6 The Government's attempt to keep cement prices in check by removing import duty on the commodity may come a cropper. Inventory levels in the country are so tight that further price rise seems inevitable, say dealers, manufacturers as well as analysts.

A moderate price hike of Rs 3-5 per 50 kg bag in Mumbai was made by a few select brands such as Indo Rama and JK Lakshmi, recently. Price-wise, these mid-sized companies are narrowing the gap between themselves and the bigger brands.

"The growing demand will push up Mumbai prices by Rs 5 in February to Rs 250. Gujarat prices, which are at Rs 207 may go up by Rs 12 per bag by March," Mr V.R. Datta, a Mumbai-based wholesale cement dealer, said.

Demand-supply scene

"We expect prices on an average to increase by Rs 20-25 per bag, driven by the tight demand-supply scenario, from October 2006 to June 2007, with utilisation levels crossing 94 per cent," said an Edelweiss analyst.

"In Mumbai, wholesale prices are at Rs 245 per 50 kg bag while imports from China, where the quality is suspect, works out to Rs 247 per 50 kg. Though, immediate price hikes across country could be delayed, we expect the hikes to continue," he said.

The larger cement manufacturers would not commit themselves either way, but their indication of where prices are headed was clear. "There has been no impact on the retail prices after scrapping of duties. Going forward, given the supply-demand mismatch there is no cause for prices to fall, at least in the next two months," said an official with one of the largest cement manufacturers in the country.

"If at all the Government intends to cap the rising cement prices they should reduce the excise duty or sales tax. These levies, along with limestone royalty account for about 60-70 per cent of the ex-factory prices."

The price revisions at the dealer level in the southern States — especially in Andhra Pradesh — are expected to be even steeper. Andhra Pradesh witnessed a 20 per cent year-on-year rise in offtake of cement in both November and December 2006, riding on a huge demand for housing and infrastructure projects.

"If the strong demand continues we may raise prices by another Rs 10-15 in March," said Mr. S Raghavendra Shetty, MD, Vijayshakthi Enterprises, a Guntur-based cement dealer. Industrial offtake has also been extremely robust, said dealers.

"The situation in rest of south is somewhat similar to that of AP. Prices have increased by Rs 6 per bag to Rs 199, as dealer inventory levels have dipped to almost nil. Prices may rise by Rs 5 per bag in February," said Mr Shetty.

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