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The cement sector is likely to have two more quarters of favourable demand-supply scenario. After two quarters, the pace of capacity additions is likely to surpass the pace of consumption growth of cement.
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Historically, Q4 has been the best quarter for cement industry due to the peak season in its user industry, viz. construction & housing industry. Thus in Q4, Cement companies are likely to hike prices. However the hike is likely to be compensatory in nature, as the industry has witnessed sharp surge in input costs, viz. coal, pet coke, gypsum etc.
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In December-07, the Monopolies & Restrictive Trade Practices Commission (MRTPC), in an order, indicted the cement industry and Cement Manufacturers Association (CMA) for indulging in cartel arrangements during Feb-Apr 1990 and fixing retail cement prices. The commission has ordered the industry not to indulge in fixing cement prices and file an affidavit of compliance with this order.
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Also, after the Tamil Nadu government's threat of nationalization, cement manufacturers have offered to make available 20 lakh bags of cement every month in Tamil Nadu at a subsidized price of Rs 200 per 50 kg bag.
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These developments could cap the magnitude of the price hike in near terms, as cement industry would like to avoid any negative announcement for itself in the upcoming Union Budget.
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In the long run, as capacities start coming onstream, cement prices may come under pressure.
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