Costlier home loans, inputs to hit cement prices

Byyyp

Updated Fri, 06 May 2011 00:00:00 GMT

Cement prices, which have moved up in the last quarter, may soften in the coming months due to reduced offtake as an upshot of the onset of monsoons, when construction activities slow down, and the spike in housing loan rates that is round the corner.

However, ballooning costs of raw materials, which constitute about 70-75 per cent of the cost of cement production, will continue to put a squeeze on margins of cement manufacturers.

Coal, freight rates up
During the January to March 2011 quarter, a sharp increase in coal prices and railway freight charges had nudged cement prices up by 8-12 per cent from the December 2010 levels. Prices of coal, which constitute 20 per cent of the raw material costs, saw a steep increase in March — in a multi-layered price increase, Coal India Ltd had hiked coal prices for the deregulated sector by 40 per cent, while Mahanadi Coalfields had made any upward revision of about 55 per cent.

Apart from coal, cement makers had to fork out an additional Rs 8 per tonne for coal transportation through the Indian Railways from December last.

"There could be a marginal dip in cement consumption from the housing sector due to the interest rate hike — this sector (including commercial buildings) accounts for almost 60-65 per cent of India's total cement consumption," Mr N. A. Viswanathan, Secretary-General of Cement Manufacturers Association (CMA), said.

Apart from this factor, predictions of a normal monsoon will water down consumption in different parts of the country between June and September, as construction activity is put off. "We usually see a 20 per cent dip in consumption during the monsoons, which gets translated into softening of cement prices," he pointed out.

Falling off the wagon
Analysts say another factor that may stymie cement offtake even after the rains is supply of railway wagons, which get diverted to transport fertilisers as a priority. Overall, growth in the cement sector is expected to stick to the projected 8-9 per cent rate during the fiscal.

Meanwhile, the sector continues to add capacity, as in the middle and long term, demand is set to grow at a faster clip, especially with the Government's sharpened focus on infrastructure development. "We expect to see an addition of about 15-20 million tonnes of capacity from the existing level of about 300 million tonnes in the current fiscal. Normally, an investment of Rs 500 crore is required for addition of one million tonne capacity," Mr Viswanathan said.