Jan 4, 2000|
Cement prices look up in the north
According to newspaper reports, cement prices in the north have registered a rise of Rs 5-10 per 50-kg bag. The hike has been effected from the beginning of the current month.
The rise in prices has been attributed to higher costs due to the diesel price hike and an overall buoyancy in demand. However, in view of the aggressive pricing strategy adopted by Lafarge, it is uncertain whether the price hike will be sustainable or not. According to the report, plants in northern India operated at an utilisation level of 88% during April – November 1999. As no new capacities are planned, the narrowing of the demand supply gap is likely to create an upward pressure on cement prices.
These reports of an improvement in realisations come after the recent mixed reports regarding the price recovery in the sector. In many markets, the hike in prices has been unsustainable mainly due the aggressive tactics adopted by a few players. As a consequence, even though demand is firming up, the rise in prices has not kept pace. In light of this, the improvement in cement prices has not lived upto the expectations of many players and observers.
With the spending on infrastructure and housing expected to grow at a healthy rate in the coming years, the demand for cement is expected to remain buoyant. Infact, it has been estimated that there is likely to be a supply gap after 2-3 years as few capacities are currently being implemented. This is expected to dramatically lift realisations and consequently the profitability of cement companies.
Cement companies may however be adversely affected by the rise in diesel prices. A continuous rise could significantly alter costs and this could lead to deterioration in margins. If however the cement companies were to pass on the hike, to protect margins, onto the consumer, there is a fear that demand may slowdown. As is always the case in commodity businesses, the cost factor will continue to play a dominant role in determining profitability.
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