Cement prices set to go up in India

Cement prices in India is set to go up by as much as Rs 9 per 50-kg bag this month as the new coal pricing mechanism adopted by Coal India Limited (CIL) has increased the production cost for makers of the building material, Crisil Research has said.
"Cement players will try to pass on the cost increase resulting from the new pricing policy adopted by Coal India w.e.f. January 1, 2012. Hence, we believe that pan-India cement price is likely to rise by 2-3% in January, 2012," said Crisil Research Head, Ajay D'Souza.

Deviating from its earlier practice, CIL started pricing coal on the basis of gross calorific value -- the energy produced by burning it -- with effect from January this year. Earlier, the price of coal was fixed on the basis of the moisture and ash content present in coal, reports PTI.

The average price of a 50-kg bag of cement fell by 1% in December vis-a-vis November to Rs 285, despite strong 13.4% growth in demand vis-a-vis the corresponding month last year to 20 million tone, India’s largest independent and integrated research house said.

"The improved pace of construction activity would also support demand growth during the month, aiding price rise," D'Souza added.
During the April-December period of the current fiscal, the country's cement consumption grew by 5.9% to 160.3 million tonne from 151.4 million tonne in the same period last fiscal.

Cement profitability to nosedive in 2013

CRISIL Research had earlier predicted reduced profitability for cement manufacturers by 2012-13. A huge demand-supply imbalance, fuelled by supply glut, will drive cement profitability down. The supply glut will slacken cement manufacturers’ operating rates, restricting their ability to pass on a sharp rise in power and fuel costs to consumers.

Over the next two years, while cement capacities rise by 60 million tonnes per annum (MTPA), demand will increase by a mere 30 MTPA. Operating rates of cement manufacturers will therefore plunge to around 72 per cent in 2012-13 from an already subdued 78 per cent in 2010-11.

Cost of power and fuel, a major input for cement, will increase by around 18 per cent in 2011-12, given a steep increase in coal prices by the industry’s dominant supplier, Coal India Ltd. In addition, an increase in effective excise duty rates will lower cement manufacturers’ net price realisations by 2-4 per cent.

“The magnitude of the demand-supply imbalance and cost escalation will halve the cement industry’s EBITDA margins from the current 20 per cent to around 10 per cent in 2012-13 – the lowest level in the past 10 years,” Prasad Koparkar, Head - Industry and Customised Research, CRISIL Research said.

Small-sized cement manufacturers – with capacities of less than 2 MTPA – are likely to post losses of about 2 per cent at the EBITDA level in 2012-13. Large cement manufacturers – capacities of 10 MTPA or higher, however, will fare better than the industry average, with EBITDA margins of about 12 per cent.