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Cement suppliers from the western and southern regions of the country have been witnessing a rise in cement prices over the past month. However, analysts believe that the price rise could be short-lived as the main reason for the rise is the temporary supply problem and the peak demand period.
Over the past one month, cement prices in the western and southern regions of India have risen by an average of Rs7 to Rs12 per bag. The prices have risen due to diversion of wagons carrying cement towards food grain transportation, coupled with the peak demand period.
With this rise in cement prices, stock prices of cement companies have also enjoyed a jump. The Moneylife Cement Index has risen by 14% from 3 November 2009 to 4 December 2009. ACC’s stock price was up by 16% during this period; Shree Cement went up by 20%; JK Cement by 25%; India Cements and Madras Cement by 18% each; Ambuja Cements shot up 12% and UltraTech Cement zoomed 13%.
However, this rise in cement prices is likely to be short-lived. “The shortage of wagons and the peak demand season have caused this price rise. Once the peak demand period is over, prices are likely to be on a downturn once again,” said Amit Srivastava, analyst, Karvy Stock Broking.
The period from November to March is the peak demand period for the cement industry. Cement prices in the western and southern regions are likely to witness the current monthly average rise of around Rs7 to Rs12 per bag up to March 2010.
The current cement price in the western region is around Rs195 per bag. Local dealers in the region believe the price may increase if the demand increases. “The main reason for the rise in price is the problem with the cement movement (due to shortage of wagons),” said a Gujarat-based cement dealer. Cement prices in the western region have increased from Rs190 to Rs195 per bag over the past month.
In the southern region, specifically Hyderabad, prices have increased from Rs140 to Rs155 per bag. A few months back, cement prices were coming down, with the southern region worst affected. In a short span of time—between August to October 2009—cement prices had fallen from Rs230 per bag to Rs140 per bag, leading to a sharp fall in cement stocks. The Moneylife Cement Index fell by 12% from 602.91 on 3 August 2009 to 533.50 on 30 October 2009.
Analysts believe that this rebound in cement prices had to happen as prices had fallen drastically in a very short span of time. But this revival in prices is not likely to sustain, said Mr Srivastava.
While the southern and western regions are witnessing this temporary rise in prices, cement prices in the northern, central and eastern regions of the country have been unaffected by this phenomenon. Current cement prices in Delhi have fallen from Rs248 to Rs240 per bag over the past month. Dealers from the region expect prices to fall further.
The transportation problem has proved to be a blessing in disguise for the cement industry, which was suffering from the early effects of an oversupply in the market. “Cement manufacturers have reduced their operating capacity utilisation to maintain the demand-supply situation. It has helped reduce their inventories,” added Mr Srivastava.
— Amrita Pillay