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Sunday, June 16, 2013

Cement companies may hike prices this month

This story first appeared in DNA Money edition on Wednesday, Jun 5, 2013.

Cement firms may raise prices this month as the demand is showing signs of improvement and also because they are looking to gain a price edge ahead of the lean monsoon season.

“Discussions are happening on increasing prices by Rs 10-15 per bag. My sense is that cement companies would increase prices by Rs 10, if not more,” said an industry source requesting anonymity.

Cement firms have been unable to pass on rise in costs — railway freight charges rose last year (25% weighted average) and coal prices have gone up 10% — due to lacklustre demand.

Sudhir Bidkar, CFO, JK Lakshmi Cement, said prices in April were lower than the March quarter, but things improved post mid-May.

“We have been able to at least get back to the realisation levels witnessed in March, particularly from the middle of May. While sustaining it, we are also looking for signs of improvement in demand to be able to increase prices,” Bidkar said during the fourth-quarter earnings call last week.

Though Bidkar did not quantify the extent of price hike, he said it will only be possible if demand pick up.

“There have been various reasons — like shortage of labour and excessive heat — for not being able to increase cement prices. However, with labour now starting to come back, one can hope there will be a price increase to some extent in June,” said Bidkar.

Analysts said given that June to September is a lean season, cement companies generally increase prices before monsoon sets in. This approach helps them arrest decline in prices, giving them a bargaining window for monsoon sales.

“The peak season this year has been really bad for the sector with prices under considerable pressure owing to subdued demand. Sales in monsoon may get further fall leading to more pressure on pricing. The pre-monsoon price increase mainly helps in maintaining the price levels,” said an analyst with a domestic brokerage.

In fact, markets in south India like Andhra Pradesh, which saw the biggest price decline in April, saw price increases of Rs 10-30 per month, the analyst said.

Cement, unlike consumer products, has traditionally had its pricing based on expenses that are externally influenced.

“It’s totally a demand-supply driven market unless you influence it adversely through some changes either in demand supply or in costs. While there are cost pressures, at the same time it is not as though the seasons are behaving traditionally. And with monsoon approaching we should be getting into a lean season, but then this year has also sort of bucked the seasonal trend,” said an official from one of the top cement makers.

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