Notwithstanding the action of Monopolies and Restrictive Trade Practices Commission against errant cement firms, prices are seen rising around Rs 5 per bag
MUMBAI: Notwithstanding the action of Monopolies and Restrictive Trade Practices Commission (MRTPC) against errant cement firms for price rise and cartelisation, cement prices are seen rising by around Rs 5 per bag each in the next two quarters, hitting a level of Rs 240 by this fiscal-end. Even imports are unlikely to help as the long-drawn BIS certification procedures are making it difficult for foreign companies to enter the local market.
Cement retail prices have risen by Rs 5 per bag since the advent of the monsoons this year, though industry players claim there has been no price hike.
According to data for April and May, capacity utilisation of the industry stood at 102% with dispatches growing 8.3% year-on-year. For the full fiscal, the industry is seen growing at 10%, with effective capacity utilisation at around 96%.
Cement prices have already increased by Rs 5 per bag across the country in the first week of July. Prices in Andhra Pradesh and Tamil Nadu have risen by Rs 5-15 per bag.
On the other hand, with fresh capacities kicking in, the effective capacity utilisation would come down to 87% next fiscal even after assuming a 10% year-on-year industry growth. As a result, there could be a decline of Rs 15 in cement prices in FY09 over FY08.
An Emkay cement analyst said, “There is a strong possibility of cement prices going northward from October despite MRTPC probe against firms on price increase and cartelisation. The prices will come down only after fresh capacity in next two years.”
The total of 70 million tonnes of fresh capacity is expected to be commissioned over next 24-30 months. The capacity addition would disturb the demand supply equation and would weaken pricing power of cement producers.
Experts believe that in the long run, cement stocks would underperform as the bunching up of capacities would take a toll on cement prices, thereby affecting profitability of the manufacturers.
MRTPC has ordered a probe into the business practices of 14 leading cement manufacturers including ACC, Ambuja Cement, India Cement, Ultratech Cement, Grasim and smaller players like Sanghi Industries, Birla Corporation, Zuari Cement, Binani Industries, NCL Industries, Saurashtra Cement and JK Cement.
India is the world’s second-largest cement producer with 165 million tonnes of cement-making capacity. The country will start commissioning an additional 80 million tonne capacity in the next two years.
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