Reduction in cement price due to oncoming monsoon
With impending monsoon season and reduction in construction activities, cement prices have taken a dip around 6% since June. Slowdown in construction activities have propelled cement companies to cut down price by Rs 10- Rs 15 for every 50 kg bag.
Price correction for cement usually starts by the beginning of June(monsoon period). With the arrival of monsoon, demand for cement gets dampened in the northern locations. The beginning of the year 2013 witnessed a price growth for cement initially, however, the rate went down due to a certain factors.
Reasons for fall in price
Cement rates started going down when CCI– Competition Commission of India, condemned around 11 cement companies for cartelization. Due to acute short supply of cement in the mid year, CCI probed the situation on request from the builders associations. After investigation, CCI levied a fine of 0.5 times of the profit for the annual year, to cement companies for violating the Companies Act.
According to market consultants, in addition to monsoon, demand for cement has been low while the production cost have risen because of fuel prices and high inflation. The initial three months on monsoon is expected to witness lower growth in demand. Demand for cement is likely to rise after the monsoon period.
Price correction
Quantum for a price correction in the coming days is between Rs 10- Rs 15 Kg per 50Kg bag. On an average, the post price correction would be Rs 280- Rs 290 for a 50kg cement bag.
Experts believe, that though there has been a sharp decline in the prices of cement, a healthy rainfall is mandatory for good crop growth. Good crop growth triggers the demand for cement in the rural areas. To add to it, farmers will be left with adequate money to build their house and other rural projects may set off.
Market analysts further confirm that compared to 2012-13, demand for cement will be much higher in 2014-15, since general election and state elections are forthcoming. Hence, it is quite likely to experience an 8% demand CAGR in 2013-16 period. Together with balance in capacity expansion at 7% CAGR must aid industry usage to redeem by 300 basis points during the tenure 2014-16.
Gradual decrease in Economy
According to major cement manufacturers, reduction in price is mainly stimulated by the economic slowdown and seasonal factors. With around 462 cement plants all over the country, the cement consumption in India reaches up to 28% to 285 million tones. However, poor transport, increasing prices in cola and intricacies involved in allocation of coal blocks have contributed to cut in cement rate, eventually affecting the economic growth of the country.
Property analysts and market experts confirm that demand for cement may rise to 8%-8.5% in the financial year 2013-14. Capital utilization is also expected to set on an escalating path from 77.3% in 2012 to 81% in the financial year 2014. The cut in prices by the cement manufacturers may not affect a common man since the mortgage and housing rates have moved up incessantly.
