Companies & Sectors
Cement companies hike prices in southern region; cut production to maintain demand-supply level

Post monsoon, while cement off-take is likely to pick up, the pressure on cement realisation caused by new capacity will restrict revenue growth, across all regions

Cement companies from the southern region, including India Cements, Madras Cements, Dalmia Cement and Chettinad Cement have hiked prices by Rs25 to Rs40 per bag of 50kg from 7th September, taking the average price in this region to Rs195 per bag.

At the same time, to maintain the demand-supply level, these companies are also believed to have cut down production.

Citing cement dealers from the southern region, Sharekhan Ltd in a note said that the price hike of Rs25 per bag is mainly due to cartelisation by regional players as they were incurring cash losses in some clusters. However, dealers are of the view that a price hike of Rs25 per bag is unlikely to sustain, the brokerage said.

Separately, according to media reports, the Competition Commission of India (CCI) is set to investigate the increase in cement prices by manufacturers and is looking at whether a cartel is at work in determining the prices. CCI is of the view that that cement prices have been increased over the past few years without any corresponding increase in either input costs or state levies, indicating that a cartel is at work.

Commenting on the CCI probe reports, Kisan Ratilal Choksey Shares and Securities Pvt Ltd, in a note said, "We believe that the increase in cement prices over the years has been because of the demand-supply scenario and increase in input prices. However, with such a probe in progress, we believe that the recent move by the southern cement companies to increase cement prices by Rs30-Rs40 per bag will have to be rolled back either in totality or in a significant way. This we believe will be negative for cement companies."

Despite the hike, average cement prices in the southern region are still low compared with the western, northern, central and eastern regions as well as the national average price of Rs225 per bag.

Although cement prices have remained under pressure over the past few months due to oversupply and fall in demand, it is the southern region, especially Andhra Pradesh, where cement producers have taken the biggest hit.

In FY10, cement prices in the southern region - especially in Hyderabad and surrounding areas - declined by about 15% to Rs145 per bag.

"Such a sharp fall in prices in the south has been on account of lacklustre regional demand due to slowdown in government as well as private infrastructure projects in the region and seasonal weakness in the construction activity due to the monsoon," Sharekhan said.

"However, from the bottom price of Rs145 per bag, at which companies were incurring cash losses in some clusters, we have factored in a hike in the prices and expect average realisation of south-based cement companies for FY11 to be in the range of Rs155-Rs160 per bag, which is lower than the present price of Rs170," the brokerage added.

During the period from 1st April to 9th September, the Moneylife Cement Index fell 5% to 693.3 points from 726.2 points while the Bombay Stock Exchange (BSE) benchmark Sensex rose 6% to 18,799.7 points.

While demand for cement had fallen in the southern region, the same in the central and western regions has remained strong, backed by scaling-up of rural and government spending on infrastructure. Especially in the central region, there has been limited capacity addition even as demand has remained robust. During April-May, while overall capacity utilisation of the sector remained at 82%, the same in the central region was reported at 102%.

During August, cement prices witnessed downward pressure and declined by Rs5-Rs10 per bag across all major cities like Kolkata, Delhi, Chennai, Baroda, Bengaluru and Hyderabad except Mumbai and other cities of Maharashtra on a month on month (m-o-m) basis. The decline in the cement price during the month was on account of poor cement off-take as construction activity slowed due to heavy rains.

However, in the mid-month period, a few cities in Maharashtra like Mumbai and Pune witnessed an increase in prices by Rs10 per bag.

Macquarie Research, in a note said, "In the near term, this oversupply is putting pressure on prices, and we believe that this will persist for the next 12-18 months. Inventories have risen due to heavy monsoons this year but we believe that demand will come back in the market as the monsoon season ends."

Sharekhan expects the cement demand to improve after the monsoon due to a likely pick-up in  construction activity and better utilisation of capacity. "The pressure on cement realisation due to stabilisation of the new capacity will restrict revenue growth. Moreover, the cost pressure in terms of higher power and fuel cost due to increase in coal and pet coke price and increase in freight cost due to an increase in lead distance will contract the operating margins of cement companies in the coming couple of quarters," the brokerage added.

A better-than-expected monsoon season as well as an increased focus on infrastructure building may push demand above the long-term average of 8%-9%. Given India's significant requirements, investment in infrastructure is likely to remain at elevated levels. About $1.2 billion is still on the table to be spent on infrastructure in the 11th and 12th Plans. This could drive growth in cement demand and keep it above the long-term average of 8%-9%, Macquarie said.



kuldeep prajapati

6 years ago

take the price

vasu deva murthy

7 years ago

please give me tha details of production of cement in andhra pradesh

Sibi John

7 years ago

The prices will further rise and will touch the Rs.300 mark again.

Govt foodgrain stocks at 50.2 million tonnes on 1st Sept, says FCI

New Delhi: Foodgrain stocks held in government godowns stood at 50.2 million tonnes at the start of the current month, according to latest data from the Food Corporation of India (FCI), reports PTI.

FCI, the nodal agency for foodgrains procurement and distribution, had 20.4 million tonnes of rice and 29.8 million tonnes of wheat in its storage facilities as of 1st September 1, a senior official said.

As per government norms, the FCI should have 26.2 million tonnes of wheat and rice available in its buffer stock as of 1st October. This includes 5 million tonnes of strategic reserves.

The Centre has created a strategic reserve of three million tonnes of wheat and two million tonnes of rice over- and-above the normal buffer stock.

The government is sitting on a huge foodgrains stocks and is grappling with a storage problem. It is also not allowing exports of wheat and non-basmati rice due to high food inflation and to meet the requirement of foodgrains for the proposed National Food Security Act.

The higher stock availability is on account of bumper output and procurement in the last two years.

India produced a record 80.71 million tonnes of wheat in the 2009-10 crop year (July-June), beating the previous year's record of 80.68 million tonnes.

On the back of record output, FCI has so far procured 22.5 million tonnes of wheat in the 2010-11 marketing year (April-March), compared to a record 25.1 million tonnes last year.

In the case of rice, the country's production declined to 89.13 million tonnes in the 2009-10 crop year from a record 99.18 million tonnes in the previous year on account of a drought that hit over half the country.

Rice procurement in the 2009-10 marketing year (October- September) will continue till the end of this month and so far, the FCI has procured 30.9 million tonnes of rice against 33.08 million tonnes in the year-ago period.


SC notice to Centre, Raja on CBI probe into 2G spectrum

New Delhi: The Supreme Court today asked the Centre and Union telecom minister A Raja for a response on a plea urging the court to monitor a Central Bureau of Investigation (CBI) probe into alleged irregularities in the 2008 sale of second generation (2G) spectrum licences, reports PTI.

A bench comprising Justices G S Singhvi and A K Ganguly sent notices to the telecom ministry and Mr Raja and asked for replies within 10 days.

The bench also issued notices to the CBI, Enforcement Directorate and Income Tax Department on the petition filed by the Centre for Public Interest Litigation (CPIL), an NGO, and others.

The petitioners challenged the 25th May decision of the Delhi High Court dismissing its plea to monitor the CBI probe into the alleged role of the Union communications minister in the sale of 2G spectrum licences in 2008.

Advocate Prashant Bhushan, appearing for CPIL, alleged that despite having documents showing an alleged nexus between Mr Raja and others, the CBI was not going ahead with the probe in the matter.

The petitioners alleged that the Department of Telecommunications (DoT), under the ministership of Mr Raja, had given away 2G spectrum to 122 operators at a throwaway price of Rs 1,658 crore for pan-India licences on a first-come-first-served basis in January, 2008.

Mr Raja was expected to take the auction route for allotting the 2G licences to telecom service providers, they said.


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