Why cement price hikes are hard to come by in East India1 min read . Updated: 15 Mar 2019, 04:31 AM IST
- Cement prices across India increased in February, but East India was an exception. Prices, in fact, fell in Bihar, Bengal and Odisha
- A spate of cement plants coming on-stream in East India during 2019-21 would continue to weigh on cement prices in the region
Cement prices across most of India increased in February, but East India was an exception. A dealer channel check by Kotak Institutional Equities Ltd showed cement prices in this region, on the contrary, declined by ₹5 per bag to ₹326. This came at a time when average prices in the rest of India increased by ₹17 per bag to ₹334. Statewise, checks showed that cement prices fell by ₹5-15 per bag in Bihar and West Bengal, while in Odisha they were flat.
One cement bag weighs 50kg.
Though the demand outlook is brighter, growth may not suffice to absorb existing supply and support cement prices. Hence, analysts are sceptical about price hikes in other regions persisting.
That said, cement prices in East India are unlikely to sharply reverse because of capacity additions. Hence, the outlook on prices is subdued. The eastern region is likely to see the highest capacity addition during fiscal years 2019-2021, a Motilal Oswal Securities Ltd analysis showed. The northern market would see the least capacity additions during this period.
“The eastern region is likely to see capacity addition of 26 million tonnes (mt). Of the 26mt, around 6mt is to be added by Dalmia Bharat Ltd by FY21. Shree Cement Ltd’s capacity of 5.5mt in Jharkhand and Odisha is expected to come on stream by FY20 along with Ramco Cement Ltd’s Kolaghat and Jajpur units," Motilal Oswal Securities said in a report on 27 February.
Other cement producers such as JK Lakshmi Cement Ltd, Star Cement Ltd, Orient Cement Ltd and Sagar Cements Ltd may also add capacities. Consequently, utilization levels are expected to be in check. Motilal Oswal estimates utilization in this region to decline from 65% in FY18 to 63% in FY21.
As such, companies focused on the eastern region would see subdued realization growth in the March quarter earnings.