Steep rise in cement prices raise concern

Cement prices are heading northwards on the back of the strong infrastructure impetus provided by the budget and the recent supreme court ruling on overloading of trucks.

Cement prices are heading northwards on the back of the strong infrastructure impetus provided by the budget and the recent supreme court ruling on overloading of trucks. The price hike is, however, getting embroiled in a controversy with many sections of the building and construction community alleging that the prices are being artificially driven by self interests of cement companies.

The cement industry raised prices by nearly 15 per cent in February this year. Prices have shot up by nearly 30 per cent from February 2005 onwards. Last year, the cost of a cement bag was around Rs 140-175 which has now shot up to a whopping Rs 195-210.

8216;8216;To improve the falling profitability, cement producers have formed an arrangement to jack up the price per bag without disturbing production. Cement manufacturers are deliberately choking up supply in big consumption centres at different times thereby creating artificial shortage,8217;8217; Builder8217;s Association of India Chairman Delhi Arun Sahai said.

However, cement players do not agree with the contention that the prices have been artificially jacked up and say that the upward curve of the prices could be here to say for the coming few months. 8216;8216;Cement companies were not able to pass on the increased fuel, freight and raw material costs in the past six months. Strong demand is helping us now raise prices. The demand should remain firm at least until June and I don8217;t see prices easing now,8217;8217; Shree Cements executive director M. K. Singhi said.

Cement makers had raised prices by nearly 6 per cent in the December quarter, but the increase was lower than the rise in costs of fuel, freight and raw materials, the industry says, adding that cement companies had been severely affected by the SC8217;s judgement on overloading of trucks due to which freight rates had gone up substantially. Freight rates now account for Rs 20-25 per cement bag which was around Rs 10-15 pre ruling.

The Indian cement industry has a capacity to produce nearly 152 million tonnes a year and the demand has been growing by 10 per cent annually. This has driven most of the cement companies to operate at peak production levels, an industry tracker said.

8216;8216;Historically in India, cement supply was outpacing demand. However, in the past few years the demand has shot up phenomenally to which the industry can8217;t keep pace with. Also there has been no major capacity addition in the industry for quite some time. Hence all these factors are showing their cumulative effect on the price increase,8217;8217; Brics Securities Head of Privileged Client Group Amitabh Chakraborthy said.

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Demand for cement is assured from the government8217;s focus on projects in roads and ports. Infrastructure is a major driver for cement demand and accounts for about 20 per cent of the total demand. With the government estimating a GDP growth of 8 per cent, analysts say that cement demand would grow 1.4 times of the GDP.

Analysts also say that the recent spate of consolidation among cement companies has also given pricing discipline in the market. The Indian cement industry has been a highly fragmented sector with more than 80 players. Prices were also low earlier as a firm would reduce prices to gain advantage in a market with many players.

One thing that all the players in the sector agree is that the customers are not going to get any relief in cement prices in the next few months.