For sure, demand did slow down somewhat, and cement prices had corrected by about Rs 50-60 per 50kg bag in the southern and western markets in the past couple of months. However, the recent shortage of railway wagons has pushed up prices again. That has prompted industry watchers to observe that even after a rise of Rs 10-12 per bag since early December, prices could head up further. A recent Kotak Institutional Equities report noted that the paucity of railway wagons had led to a shortage in supplies in the south and west, resulting in price increases in the first week of December. The report adds that the price increase in December only partly compensates for the sharp decline in prices seen in the preceding months and, therefore, a 3-5% decline in realisations in 2010-11 was possible.
In the western region, which includes Maharashtra and Gujarat, cement prices have seen an increase of Rs 8-10 per bag since early December. While the commodity sells at around Rs 220-250 per bag in Mumbai, in Gujarat the rate is somewhat lower at Rs 170-190.
After falling sharply by Rs 30-80 per bag over the past three months, cement prices in the southern market of Andhra Pradesh, too, have registered a slight increase of Rs 10-15 bag. Prices in southern markets are currently ruling in the range of Rs 135-180 per bag, whereas in some pockets, it is also being sold at Rs 230 -250 per bag.
While prices have moved up in western and southern regions since early December, a section of industry watchers is of the view that these levels are unsustainable. Thats because new capacities are coming up; while current capacity stands at 234 million tonnes, the industry is expected to add 40-50 million tonnes of capacity in the next one year.
Also, analysts arent seeing any pick-up in demand. A JP Morgan report says, As of now we have not seen any real demand spike and the price increases are more due to supply discipline and infrastructure bottlenecks. For the price hike to sustain a combination of strong demand revival and continued supply discipline need to hold.
That could happen with the economic recovery gaining momentum. Says Vinod Juneja, MD, Binani Cement, Apart from the shortage of railway wagons, there has been some increase in demand from the construction sector and for the 2010 Commonwealth Games. Indeed, the slight uptick in demand has prompted producers to pass on the higher cost of fuel. Prices of imported coal are now ruling at $80 per tonne, up from $50-55 per tonne in September 2009.
However, cement prices in the northern and central regions have recorded pricing dips of Rs 10-15 in the past one month, while the eastern market remains stable.
HM Bangur, chairman & MD of Shree Cement, says prices in the north are currently stable since there is enough cement available now. All-India despatches in November 2009 grew 8.8% year-on-year, but only 2% sequentially.
According to an IIFL report, a rebound in infrastructure construction in central parts of the country led the regions despatches to grow 17% year-on-year in November. Dealers said there was a renewed thrust on infrastructure projects by the Uttar Pradesh government.