MUMBAI: Cement prices could rise again this month-end, the second hike on the trot in less than a month, presaging many more this year as a dearth of key inputs and transportation woes threaten to negate the odds of an oversupply in the next quarter.
Cement prices, which rose by Rs 10 a bag early this month after the government hiked excise duty to 10% from 8% in the budget, is set to see a similar hike as producers are planning to pass on the impact of the recent diesel price hike to consumers, dealers say.
Currently, a 50 kg bag is sold at Rs 275 in Mumbai, Rs 265 in Kolkata, Rs 245 in Chennai and Rs 190 in Hyderabad.
The 240 million tonne domestic cement industry, which transports nearly 60% of its dispatches by road and 40% by rail, pays as much as 20% of its operating costs on transportation. So, typically any hike in transportation costs alters cement prices.
As for coal, unable to meet its voracious demand, the industry — the world’s second-biggest after China — is forced to buy at least 50% of its needs from overseas markets at higher rates. To make matters worse, the availability of power is nearly 25% lower than demand.
According to leading producers of the commodity, the shortage of inputs and wagons will put incessant pressure on prices through the year even if higher allocation towards infrastructure development spawns demand for construction materials, including cement.
“The rail wagons and power shortage are the real hurdles, which, if not resolved, will force cement makers to raise prices,” says Shiva Cement managing director Rajendra Prasad Gupta.
Sanghi Industries director Alok Sanghi says his company is analysing the possibility of a price rise.
Analysts feel cement prices may not come down if issues related to the supply of raw materials are not resolved.
“The dual factors eat into the bottom line of the companies,” says an analyst, requesting anonymity, adding that as a result, consumers will be unable to enjoy the benefits of an oversupply situation expected in the next quarter.
Still, experts are not sure if cement makers will be able to pass on every rise in transportation cost to consumers.
Source : Business Standard. 16/03/10