Cement Prices To Rise
According to the same sources, the Indian cement industry has witnessed a 14 % 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 6-7 years.
Cement industry insiders gave a point by point argument for the likely rise in cement prices:
1. In the last one year we have seen 60-70 percent rise in cost of fuel.
2. Cement cost and normal inflation are much more than the pricing that what the cement companies have been able to raise.
3. There is a very dire need to correct the pricing to at least recover some portion of this cement cost and inflation increase.
4. There is surplus capacity in the cement industry but no pricing power.
5. Cement companies are selling a cement bag practically at the same price that was prevailing in 2011-12.
6. 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, which will bring the cement industry at the level where they were last year in terms of operating margins.
On a related note, of the 500 million tonne capacity available in the industry, only 300 MT is utilized at the moment. The health of the cement industry isn't as good as expected and a lot of units have been put on the block. It indicates the margins are not very healthy.
This is expected to continue for a while till such time the prices are corrected. More cement companies can be expected to go for insolvency proceedings if cement prices are not corrected and unhealthy margins remain.
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