Cement demand may grow post monsoon, but not much: Experts

On account of continued margin pressures, most cement companies are hoping to increase prices for the first time in calendar year 2011. However, this hike may not be sustainable. "Logistical inadequacy is causing price hikes in the cement sector," says Sanjay Ladiwala president of the Cement Stockists and Dealers Association of Mumbai.

This year, though demand will be lower as compared to last year, according to Ladiwala, he sees growth in demand at grass-root level post monsoon. "In the near future, however, there won't be any pick up in demand." "The year-to-date demand growth is just 5% as against 10% last year. For the full year, we are expecting it will be close to 6.5%. And for FY12 we are expecting it close to 9% on the low base effect," adds cement analyst Rupesh Sankhe of Angel Stock Broking. In an exclusive interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy, Ladiwala points out that though it is difficult to estimate the impact of coal prices on EBITDA its availability is surely a cause of concern. Below is a verbatim transcript of their interview. Also watch accompanying videos. Q: How are the demand and supply pressures stacking up in this quarter itself? It usually is a high demand quarter. Will that mean that cement companies will get some leeway in terms of better utilization? Ladiwala: Yes, the demand has kicked in as is usual. Post monsoon, the demand does kick in. But after the north-east monsoon which hits the South, from January 15 onwards, in the first week of February the demand does kick in and at the grass-route level we feel that there will be growth in demand. However, it may not be up to expectations. We have been classically seeing 10% cumulative growth year on year but this year it may be slightly lower than the classical average growth. Q: Coal prices seem to be bruising most of the cement majors. We now understand that going forward, due to the difficulty of coal linkages, most of these cement majors will have to go and source imported coal from the open market. With the way imported coal prices are surging, how much do you think cement makers will have to sacrifice in terms of EBITDA per tonne, how much could it really depreciate by? Ladiwala: It is difficult to say how much the EBITDA would be affected because everybody has a different combination. Some are going in for coal, others for petroleum coke and the transport costs are different. Those which are near the sea ports are more advantageously placed. So, it is difficult to calculate how much the EBITDA would be affected by coal prices. Of course, the coal prices do form a certain component of the power requirements and it is about 13% odd on an industry average. More than the price of coal, it is the availability which is a cause for concern. If that is now going to be a problem, it might affect the eventual volumes that would be a bad sign, rather than the cost increase per tonne in the input cost because that can be absorbed. There have been other increases which have been absorbed like logistical increase, so that is possible to absorb it but it