The cement industry, which has been facing concerns over oversupply, saw prices falling last year to the lowest levels in two years, especially in Andhra Pradesh, where rates have slid to Rs 165 per 50 kg bag, close to the cost of production.
Though cement prices showed signs of firming up in the third quarter of the financial year, analysts predict that by May-June, prices will again start falling because of the oversupply.
Prices in the eastern region (Kolkata and Bihar) were higher than other regions country, at Rs 280-285 per 50 kg bag for retail buyers. This price differential led players such as India Cements to divert some of their supply to the region in search of short-term gains.
In the western region, prices are at Rs 270 per 50 kg bag for retail consumers and Rs 255 for wholesale. Incremental supply from Andhra Pradesh and the North pulled down prices here. Though the supply has weakened now, it is expected to go up once new capacities are added.
The prevailing oversupply is likely to result in a drop in capacity utilisation to around 80-85% for the first half of 2010, cement manufacturers said. In the south, the figure is expected to drop to as low as 65-70%, said analysts tracking the sector.
The present utilisation rates are 98% in the north, 86-87% in the east, 82-84% in the west and 73% in the south. But the cement overcapacity hasn’t deterred manufacturers from putting up new plants.
Companies like Dalmia Cement, ACC, Grasim are all gung ho about their expansion plans keeping in mind the future requirement of the country.
Mergers and acquisitions are also likely to be in season in the year ahead. Though Grasim has already started merging its entity UltraTech and Grasim under Samrudhi Ltd, it is also open to acquisitions.
Even ACC, which was the largest company before Grasim’s merger, is nevertheless going to make a few acquisitions before it settles down. Other mid-cap cement manufacturers are also upping their warchest.
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