Cement prices fall as demand slows

MUMBAI: With the spectre of a major slump in demand looming over the peak supply season, cement makers across India have been forced to cut prices in a bid to revive demand.

In Mumbai, wholesale prices are currently between Rs 244 and Rs 248 per 50-kg bag, down from Rs 253 during the Diwali season. Cement manufacturers, including biggies like UltraTech and ACC, started offering discounts a month ago. A cement stockist said all the players have since reduced prices.

Even so, demand shows no sign of revival. The December to May period is considered to be the peak season for cement sales and a decline of nearly Rs 9 in prices going into the season may indicate the state of the housing and construction industry in the region. Other regions aren’t doing any better.

In Kolkata, which had seen wholesale prices fall by Rs 4 to Rs 248 per bag in mid-October, there has been a further reduction of Rs 5-9 since then. A Kolkata-based dealer said biggies, including Lafarge, ACC and UltraTech, slashed prices by Rs 7-10 for wholesale buyers. In fact, UltraTech has reduced prices by Rs 10 to Rs 239 per bag, forcing smaller players to follow with reductions of Rs 13-18. But, even this has failed to stir demand.

In north India, which gets its supply mainly from Gujarat and Rajasthan, prices have fallen by over Rs 10. Prices have come down to Rs 200 per bag in the Jaipur region and to Rs 225 per bag in Delhi and nearby states. Local player Binani Cements, which commands a market share of 6% in the region, is facing cost pressures.

Vinod Juneja, managing director, Binani Cements, said prices in the north have seen a major decline, exerting pressure on manufacturers. “The southern market is one of the best places right now. They get Rs 25-30 per bag more than the northern market,” said Juneja.

But even the southern market has started feeling the pinch.

A Chennai-based dealer said companies such as India Cements, UltraTech and Madras Cements have reduced prices by Rs 7-8 per bag for wholesale buyers and Rs 10 per bag for retail buyers. Smaller players have cut prices by Rs 15 per bag. Cement prices in the region are thus down to Rs 243-255 per bag from Rs 255-265 just 2 months back. A silver lining for cement firms, however, is that the price cuts come when the cost of inputs — coal, sea freight and packaging, etc — seem set to fall. But manufacturers are unlikely to benefit from this.

J Radhakrishnan, a research analyst with India Infoline, in a December 5 report, wrote, “With price of key inputs declining, we expect cost of production for cement to reduce going forward. However, with incremental supplies outpacing incremental demand by a wider margin and possibility of revival in the medium term looking difficult, we believe producers will pass cost reduction benefits to protect sales volumes.” A further cut of Rs 10-15 per bag is expected ahead, he wrote.

The stimulus package announced by the government on Sunday may have come at a right time, too, an analyst said. “After the duty cut (by 4% from 12% earlier), cement companies will be able to book profits. But if they cut prices, it will be difficult for them to sustain margins.”