Mar 22, 2013 07:37 PM IST | Source: CNBC-TV18

See cement prices at current levels till mid-2013: Ladiwala

Sanjay Ladiwala, President of Cement Stockists & Dealers Association of Mumbai told CNBC-TV18 the slowdown in the infrastructure space is pressurising cement prices.

Sanjay Ladiwala, President of Cement Stockists & Dealers Association of Mumbai told CNBC-TV18 the slowdown in the infrastructure space is pressurising cement prices. He also added that elections next year will give further direction to prices. Going forward, he expects cement prices to stay at current levels till the middle of 2013.

Here is the edited transcript of the interview on CNBC-TV18.

Q: For the first time in 12 years we saw a quarterly demand for cement perhaps falling. Do you think this is going to persist? What explains this fall? Is it entirely the economic slowdown?

A: The major sector in which we are seeing a slowdown is the infrastructure segment. Surprisingly so, because during the month of March we normally see hectic activity in this segment. There are deadlines to be met and March 31 is usually the deadline for many departments to finish their work. Therefore, it is a surprising development just now.

Hopefully, this trend should correct itself but because of the hurdles which a lot of infrastructure projects are facing, we are not seeing a push coming from this segment.

Q: Is this an instance of private sector infrastructure projects stuck for permissions or has it got anything to do with planned expenses by the government getting cut? The fiscal deficit for the current year which ends next week has been met because about Rs 1 lakh crore of planned expenditure has been cut. Is there any talk among the producers that government is consuming less?

A: Both the factors contribute to this lack of demand. In the private segment, we are seeing a lot of infrastructure companies who have their finances stuck in Build-Operate-Transfer (BOT) and Public private partnership (PPP) projects.
 
They are not able to extricate themselves from that and therefore, further investments are not being undertaken by them.

At the same time, the government finances are not in place and payments which were long overdue are also not coming forth. Besides, newer projects which were to come on stream are also slowing down. All these are contributing to the slowdown in infrastructure and that is the main segment.

Real estate as we know is flat and nothing much can be done about that. So this was the only segment on which there was hope and in the month of March if you see a slowdown, I don't know what will happen during the monsoon.

_PAGEBREAK_

Q: We want you to tell if this is the best month and if it has done so badly, how are you expecting the rest of the calendar year to pan out?

A: During this calendar year, unfortunately I don't see much happening on the demand side as far as the infrastructure segment is concerned. During the monsoon of course the demand will be lower. Unless and until the government does something to really revitalize this, I don't see how that is going to happen.

There are proposals by National Highway Authority of India (NHAI) to have funding and private funding to help their projects. Unless they come on stream at a very fast pace, which I don't see happening, the real demand is not going to kick in during this monsoon. So this year does not augur too well for the industry.

Q: Some believe that in FY13 all India demand growth on the back of negative demand in February, perhaps might even extend into March as well. For FY13, the demand could turn out to be close to about 4 percent for cement. Will FY14 be just as bad? Are we going to see low single digit demand?

A: Yes it is likely to be that because the first six months don't look too well but the only silver lining, the only ray of hope we see is the election year coming forth in 2014 or may be before. And if that happens, there is always a correlation between elections being announced and pick up in demand. That could give a little boost and that is the only trigger we see happening during FY14.

Q: We have also seen rising cost pressure and on top of that demand is so weak. How do you expect pricing environment in the cement sector to move over the next six months?

A: If I take the six month period into two segments till May, I don't see the prices actually coming off. They have been steady, they have tried to pass on the cost increases and try to increase the prices but that hasn’t happened in the last one month.

Even if the prices hold steady, that is still okay. But, the next three months including the monsoon months is going to be a tough time trying to maintain prices. There may be hard times therefore for some companies to meet their variable cost, especially companies which are Andhra based, where production is so large.

Q: What kind of a price fall are you expecting and what kind of margins are companies likely to operate at?

A: That would be guess work because cement prices are completely unpredictable and there is a lot of pressure on pricing because a lot of capacity has come on stream. During this year, we were expecting about 22 million tonnes to come on stream.

Instead of that we are expecting close to 30 million tonnes. It means that additional capacity is more than expected, more than what was anticipated and that is causing prices and cement demand being price inelastic. There is no saying how much it will react to the re-growth in demand.

_PAGEBREAK_

Q: When you say this year, you mean this fisc or 2013?

A: Fiscal year 2013 has started.

Q: When you say that we are not operating at capacity, more than expected have come in, can you give us some guess as to what is the capacity utilization?

A: Till December we were operating at about 71 percent capacity utilization. After these new capacities have come on stream, of course they are not at full production yet. But, once they do the figures are likely to be lower. The capacity utilization should be around 68 to 69 percent.

Q: How are the current inventory levels across cement companies?

A: Pretty high as of now because a lot of supply has come on stream.

Q: Over the next six months what is going to be the capacity addition?

A: We are seeing about 20 million tonnes coming for the whole fiscal. It would be difficult to divide it month wise or quarter wise because there are always delays built in. However, during the next fiscal we should see another 20 million tonnes coming on.

Q: Normally what is the correlation between GDP and cement growth? It is a percentage or two higher than GDP growth?

A: Classically it used to be 1.23 as a factor but, that no longer holds true and that was years ago. So there is no direct correlation that you can establish now.

Q: It grew at about 5 percent this year or was it flat altogether?

A: This fiscal, till the last quarter we expected about 5.5 percent but it would be lower than that now looking at the last quarter performance. We are looking at about 4.5 percent incremental growth in demand.

Sections
Follow us on
Available On