After a price hike of Rs 10 to Rs 30 per 50 kg bag a few weeks ago, the cement companies are planing to increase prices again in the next few days.
This time the cement firms are mulling to increase the prices by around Rs 5 to Rs 25 per 50 kg bag, sources said.
Owing to monsoon, poor offtake from construction majors and shrinking demand from government projects of different states, the cement companies have decided to go for another round of price hike to offset a possible hit in their profit margins.
The companies claimed to have lost nearly Rs 700 a tonne in gross realisation over the last few months owing to a huge addition of around 40 to 50 million tonne capacity in the last one year or so which in turn impacted their quarter earnings and even led to losses.
Many companies claimed that they were selling the commodity below the manufacturing cost for the last few months owing to overcapacity in the markets, particularly in the southern region which alone accounts for nearly 30% of the overall sale in India.
India Cements vice-chairman & MD N Srinivasan had said, ?We cannot sell cement below the manufacturing costs and no one can afford to sell the commodity below certain price. A sharp growth in capacity took place ahead of demand and companies, including India Cements found it difficult to sustain at the current rate.? He, however, refused to disclose the exact price hike.
A senior official of Madras Cements had said, ?It will be loss for us if we sell below the fixed or manufacturing cost. We are producing at 45% to 50% of our capacity owing to poor market conditions and we cannot sell at less than the manufacturing cost. We need to at least cover the basic cost or otherwise it will be difficult for us.?
In order to avoid a major hit in their earnings, these companies took a decision to hike the prices earlier this month. Not happy with the earlier hike, the producers are seriously contemplating one more hike at the same or little lesser level, the sources pointed out.
Interestingly, many producers also decided to bring down their capacity utilisation to a level of 65% to 70% to ensure that the demand for the commodity is always on the upper side than the supply, the sources said adding the price increase has been the result of disciplined approach by the players in these markets.
According to the sources, the demand for cement consumption is expected to pick up by year-end owing to a gradual recovery in the organised real-estate segment coupled with the launch of new housing projects. Till such time, these companies will try to maximise their earnings through another price hike, the sources pointed out.