Cement prices up, may touch Rs 200 a bag by April

Confirming the positive outlook on the cement industry in 2006, prices at the retail markets in the country's western region and Mumbai areas jumped by Rs 3-5 to Rs 180 per 50 kg.

"The rise is in response to a tremendous increase in demand," said Sanjay Ladiwala, president, Association of Cement Stockists and Dealers of Mumbai." Prices are further expected to increase by Rs 5-10 per month till June," he added.

Interestingly, the hike has coincided with a general increase in the despatches and production of major cement companies in December. Adtya BirlaGroup's cement production grew by almost 11 per cent in December, 2005 to2.56 million tonne and despatches grew by 13 per cent to 2.59 million tonne.

For the April-December period, production grew from 19.06 million to 20.5 million tonne. Despatches grew by 7.25 per cent from 19.1 million tonne to 20.5 million tonne.

Similarly Gujarat Ambuja reported a 3 per cent growth in production at1.61 million tonnes for December and despatches grew by seven per cent to almost 1.2 million tonnes.

ACC's production for the month were at 1.57million tonnes and despatched stood at 1.59 million tonnes. The price hike is expected to have an impact in the rest of the country, especially in the North where the demand is one of the highest.

"Major infrastructure work, including the Delhi Metro and the Golden Quadrilateral, will drive the demand," said Shailendra Chouksey, whole-time director, JK Lakshmi Cement.

Analysts expect the demand to increase by about 10 million tonnes in the new calendar year and cross the 150-million-tonne mark.

On the other hand, the installed capacity of about 155 million tonnes is hardly expected to increase much this year. Most of the major expansion plans announced by cement companies, including Shree Cements' 1.25 million tonnes and Jaypee's3.5 million tonnes, will materialise only by the end of 2008 financial year.

With many players, like Gujarat Ambuja, also catering to the export market, the scenario will add pressure on prices. Moreover, the increase in freight charges after the Supreme Court ban on overloading will also have an impact on cement prices. Little wonder that experts expect prices to breach the Rs 200 mark by April.

"In the Southern region, where the prices are about Rs 155 per bag, the implementation of the VAT will push up the prices, says an analyst.

Till now, tax differences among the Southern states have kept the prices down. In the north, cement prices currently hover around the Rs 145 per bag mark.

Nevertheless, backed by the increasing demand, the rising prices, "the industry this year should clock 9 per cent growth against the 8 per cent rate last year," said Chouksey.