Cement Prices May Increase By 10% In Next Six Months

Cement prices could rise by up to 10 percent in the next six months to compensate for the increased fuel and transportation costs, according to a top official of an industry body.

The Cement Manufacturers Association said that the industry has witnessed a 14 percent growth in the first half of the year ended March 2019—the first double digit growth since nearly nine fiscals ago—thereby providing an opportunity for the correction of prices which have remained stagnant in the last six to seven years.

"If not for anything else, there is a very dire need to correct the pricing. In the last one year we have seen 60-70 percent rise in cost of fuel. At least to recover some portion of this increase, we need to increase the prices of cement," CMA President Shailendra Chouksey told PTI.

He added that the cement's cost and normal inflation are "much more than the pricing that we have been able to raise”.

There is surplus capacity in the cement industry but no pricing power, Chouksey said, adding even after witnessing pick-up in demand, "prices are still languishing at very very low levels”.

In Delhi, a 50-kg cement bag sells for less than Rs 300, currently, he claimed.

Of the 500 million tonne capacity available in the industry, only 300 MT is utilised at the moment, he said. However, with sustained demand, he said there's an opportunity for the industry to correct the prices.

When asked by how much the prices could go up, he said, "Just for recovering the fuel and transportation charges, that will call for a minimum of Rs 25-30 per bag, which is about 8-10 percent increase in prices."

Such a price hike, he said,"will bring us at the level where we were last year in terms of operating margins."

Stating that the health of the cement industry isn't as good, Chouksey said, “We have been seeing that lot of units have been put on the block. It indicates the margins are not very healthy, I think that will continue for a while till such time the prices are corrected." He also added that he would “not be surprised” if more cement companies go for insolvency proceedings.