Cement prices in south India witnessed a price hike in the range of Rs 25-40 per 50 kg bag last week. This price hike by producers is despite low to flat demand for the commodity pan-India with the monsoons yet to see an exit.
Mumbai saw a price hike of Rs 5 per bag last month despite weak demand, hinting towards cartelisation by cement players. Cement players told FE that the rising cost and negative Ebidta has triggered this move. The second quarter results are expected to fare worse than the first quarter due to muted demand in monsoon, low prices and reduced offtakes, industry players said.
S Sreekanth Reddy, whole-time director, Sagar Cement told FE, ?This is not an overnight decision. We have hiked the prices after four to five months of background examination. The rise in coal and diesel prices and frequent power cuts in Andhra Pradesh has led to cost pressure and negative Ebidta for the companies.?
According to IIFL report, average international coal prices are 30% higher y-o-y with road freight rates up by 20% y-o-y, owing to the economic revival and the increase in diesel prices. South-based cement firms source 60-70% of coal from global markets for kiln usage and power generation.
?Coal and freight costs form 50% of total cost for cement firms. However, cement prices remain lower by 20% y-o-y, in spite of the recent price increase. Earnings of south-based firms are likely to impact negatively on account of sharp increase in costs and lower realisation,? said J Radhakrishnan, an analyst with IIFL.
Cement majors like ACC, UltraTech, India Cements, Heidelberg Cement and JK Lakshmi among others reporting a de-growth in their net profit in the June quarter. Falling prices, especially in the South, had hit the bottom line of cement majors during the Q1 of FY 2011.
Ashish Guha, MD of Heidelberg Cement India reportedly had considered the first quarter to be a tough one and also the worst quarter in the past four years. However, in anticipation of good demand in the third quarter, cement players are considering to break even the price fall in the past. Vinod Juneja, MD of Binani Cement said, ?Good monsoons will trigger more demand from the rural areas. Infrastructure activity is also expected to increase post monsoon.?