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Cement companies, which agreed in May to hold prices for three months to help the government contain inflation, could find it difficult to raise rates when the moratorium ends on August 14.
Top producers say the current market condition is not buoyant enough to absorb a price hike. This means the cement industry may have to continue absorbing the input cost for a major period of the current quarter.
"I would want prices to go up, but the market is not ripe enough to absorb any hike. On the contrary, prices could come down as demand dips by 15-20 per cent around this time of the year as a result of rains," said A L Kapur, managing director, Ambuja Cements, the country's second largest cement producer.
Cement companies saw a cost push of 12 per cent on the input side during the January-March quarter on account of a surge in prices of coal, gypsum, power, freight and so on. However, before they could pass on this entire increase to consumers, the government, desperate to contain inflation, persuaded the industry to hold prices. This was on May 14.
Most companies saw a dip in their profitability during the January-March quarter as they could not raise prices. This trend has continued in the April-June quarter.
"This quarter (April-June), year-on-year government taxes and duties were up 15 per cent and fuel costs alone rose by a staggering 41 per cent. The quarter also saw an unprecedented increase of 24 per cent year-on-year in the cost of principal inputs, including coal, power, fly ash and gypsum," said Sumit Banerjee, the managing director of ACC, the country's largest cement producer. The company's net profit dipped over 17 per cent in the said quarter.
"Unless the industry is able to recover cost increases, through suitable adjustments in selling prices through rational economic considerations, the cement industry will be under pressure," added Banerjee.
Kapur said his company has recently contracted coal imports at a rate as high as $240 a tonne on the cost, insurance and freight value. "Not long ago, I was importing coal at $65 a tonne. The bags, used to pack cement, now cost Rs 7.50 as against Rs 6 a year ago," he added.
"Cement prices are stable. This is not the time when we can pass on the input cost push. There is a reduction in overall demand, owing to monsoon and import is also putting pressure on prices," said J DattaGupta, head (commercial services), ACC.
While companies may find it difficult to raise prices during the rainy season, the situation is unlikely to improve even after rains as large new capacities are slated to go on stream later this year. This might put a pressure on prices.
According to the Cement Manufacturers Association, the industry is likely to create an additional capacity of 32 million tonnes in 2008-09, taking the total capacity close to 240 million tonnes.
