Mumbai: Cement makers are likely to raise prices after an agreed moratorium with the Union government ends on Thursday, as the industry continues to face rising costs of raw materials such as imported coal.
“We must increase prices by about Rs15 a bag to recover cost hikes,” Sumit Banerjee, chief executive of India’s largest cement maker ACC Ltd, said by email. “We are discussing with the government, through the Cement Manufacturers Association, to find ways to mitigate the impact of excise duty and coal cost increases as well as non-availability of railway rakes for the industry as a whole.”
Vital input: Workers carry cement bags at Noida. One of the biggest concerns facing the cement industry is the rising price of imported coal. Photograph: Harikrishna Katragadda / Mint
Most analysts, however, are expecting only a token hike except in southern India, where demand could drive prices higher by Rs8-10 per bag. A bag of cement typically weighs 50kg.
Cement companies had agreed in May to not increase prices for three months, for fear of fuelling an already rising inflation. Based on wholesale prices, inflation has risen to the highest in 13 years on the back of record crude oil and food prices.
India had also imposed a ban on cement exports and an export duty on steel products to keep a check on domestic prices. The cement ban was partially rolled back later, but the government has tried to keep a tight leash on prices of all sensitive commodities that contribute to the Wholesale Price Index, which is used to measure inflation.
Additional local capacities that have narrowed the gap between supply and demand are more likely to keep cement prices in check.
“There is no more a case for raising prices for the cement industry, as demand and supply are pretty much balanced,” said Hitesh Agrawal, head of research at Mumbai-based Angel Broking Ltd.
Cement makers have increased capacity by about 20 million tonnes, or mt, to more than 200mt per annum. The industry is expected to increase its capacity to about 250mt by the end of 2009.
“We might see a token hike of Rs2-3 per bag, but beyond that, it is going to be very difficult for the companies as they are certain to invite the wrath of the government,” Agrawal added. “It is very difficult to assume that the government will let one industry raise prices, while preventing another one from doing the same.”
Steel makers, who were also subjected to a similar three-month freeze on prices that ended last week, agreed to keep spot prices intact even after the period ended, in trying to help the government fight the still rising inflation.
One of the biggest concerns facing the cement industry is the rising price of imported coal, on which a majority of the companies depend upon. Fuel and power adds up to more than 45% of the cost of production, with coal taking up a little more than 25%. Imported coal prices have jumped to about $180 (Rs768.6 crore) a tonne from $78 a tonne last year.
Two of the top four cement makers in the country posted their slowest earnings growth in eight quarters for the three months ended 30 June, while the other two saw a fall in profits, as reported by Mint in July.
In southern India, analysts are expecting strong demand to drive prices up by Rs8-10 per bag, to bring the rates closer to the national average of about Rs230 per bag.
“There is a case for increase in prices in the south, but in the rest of the country there is enough supply, especially in regions like Gujarat and Punjab,” said an analyst with a domestic brokerage who did not wish to be identified as he is not allowed to speak with the media.