Cement prices rise, but may not hold for long

After a free fall since April, cement prices have started rising in the northern, western and eastern parts of the country while prices in the south continue to remain steady.

While the cement industry enters the peak season period of October to March, analysts are doubtful whether price hikes are sustainable.

Prices have been hiked by Rs10 per 50-kg bag in the worst affected northern region in the first week of September, rising as high as 12 per bag in some cities.

Prices in the west have risen Rs5-7 per bag while in eastern region they have gone up by Rs10. Since April 2011, prices have corrected by Rs20 to Rs80 per bag across the country.

After the latest hike, wholesale cement prices for the northern region are around Rs190- 210 per bag, in the western region Rs220-265, while they are stable in the south at Rs240- 260.

However, a few industry watchers are sceptical whether the market would absorb the hikes.

“The main reason for this hike is a slight increase in demand. However, cement manufacturers are jumping the gun and are over optimistic about the demand pick-up,” said a cement industry insider, who did not wish to be named. He said in case the market does not absorb the price hikes, there could be a partial roll back in prices.

However, analysts are positive about the hike in cement prices.
“We are exiting the seasonal weak period and entering the strong period. Operating performance of the cement companies will see a sequential decline for the September quarter and improvement in the coming quarters. We expect sustainable price rise to continue till May 2012,” said an analyst from a domestic brokerage firm.

An Edelweiss Securities cement channel check note in the last week said, “In the northern region, companies have reduced supplies in the non-trade category to make the hike more effective. Though dealers’ response to sustainability of the price hike is mixed, prices are showing signs of bottoming out.”

Prices continue to remain flat in the southern region mainly due to a price discipline by manufacturers in spite of low demand. But industry watchers do not see prices rising in the southern region.

“We do not expect any robust demand in the southern region till the next year as there are no projects coming up there in the near future,” said an industry insider.