With the next round of proposed increases, the N Srinivasan-controlled cement major would have raised prices by almost Rs 20 per bag since last month. Industry sources said that other bigwigs like Larsen & Toubro and Madras Cements are also reviewing the spurt in demand and may come out with a similar price hike very soon.

"The demand for cement is on the rise in the southern markets and we plan to raise prices by Rs 5 per bag by mid-April," said a senior India Cements official. The cement major had hiked prices by Rs 10 (in two stages) in March, while another round was effected on April 2 when prices were raised by another Rs 4 per bag.

The Sankar brand of India Cements, a premium brand in Tamil Nadu, is commanding a price of Rs 155-160 per bag at the retail level,company officials said. L&T Cement, another premium brand in the region, is available at an invoice price of Rs 152-155 per bag.

"The market is reacting favourably to the price increases and there is enough reason for us to revise rates as the costs of inputs are increasing sharply," the ICL official said.

Prices in Tamil Nadu, after having touched rock bottom, are already on the ascent and cement bags in Chennai are available at Rs 155-165 per bag at the retail level. However, the current price levels are still much lower compared to the prices early last year, when invoice prices had shot up to Rs 179 per bag.

"Input costs are rising, on an average, by Rs 8-10/bag per year, and the average price realisation hardly covers the higher cost. With demand picking up in the southern markets, the cement producers are left with no option but to raise prices," said an L&T official.

The recent spurt in demand has come as a big relief to cement producers in the region who had to bring down prices earlier thisyear to match the falling demand. In fact, during January and February, the cement makers were forced to cut prices by close to Rs 15 per bag following poor offtake.

"We had to lower prices by Rs 8 during the second week of January, while in February the prices had to be reduced by another Rs 4 per bag," said L&T sources.

The problem with the Tamil Nadu market, which was earlier considered relatively stable, is that a drop in prices in Andhra Pradesh pulls down prices in the state. "Earlier this year, cement prices in Andhra Pradesh had fallen sharply to Rs 95-98 per bag, which in turn led to severe dumping in Tamil Nadu," say industry observers. This brought down Chennai prices to very low levels of Rs 125-135 per bag.

Prices in AP are currently stabilising and cement is available at invoice prices of Rs 107-110 per bag. With prices increasing in the neighbouring state and demand picking up, cement producers in Tamil Nadu are coming together in seizing the opportunity to revise prices upwards. "Cementprices in recent months were not remunerative for local players, and the recent spurt in demand will come as a welcome relief for the industry," say analysts.

Insight

May be shortlived

Cement majors in southern India will no doubt benefit from the surge in prices. This rise is likely to take care of the increase in input costs that had taken place due to freight and other elements. However, the jump is likely to be shortlived as the current surge in demand can be viewed as part of seasonal pre-monsoon purchases.

Prices as well as demand are likely to take a hit during the monsoon season. A point worth noticing is that inspite of acquiring Raasi Cements, India Cement has not been able to dictate prices in the south. The premium enjoyed by the company has remained more or less the same.