Logistics issue leading to cement price hike: Ladiwala

A: The price rise is mainly in south and west. As far as the northern region is concerned, it is not really substantially, it is hardly Rs 10 per bag and it is quite steady in the east also. We are seeing price rise in south which has risen substantially over the last two months about Rs 70 a bag or so since December. The west has also gone up by about Rs 45-50 in the last two months, which is substantially high price.

Latha: Is this just a bounce back, a correction of prices after the inevitable fall during the monsoon season. Is it largely coming back to pre-monsoon levels? If you have to give a year-on-year comparison then are cement prices higher however, marginally from year ago levels?

A: Yes, in the two regions as I said in west and in south, they are higher on a year-on-year (YoY) basis. Not so in the north, not so in the east. This has not been driven by any other reason but because there is a shortage of logistical infrastructure. There is a bottleneck for transportation and this is nothing new this happens every year.

Around this time the wagons are diverted towards movement of agricultural products and they do affect regions, in fact very soon even north will be accordingly affected and that becomes a trigger for the prices to rise. Post monsoon the prices had been very steady and then a trigger is required to start the prices moving forward and invariably it is the logistics which acts as a trigger.

Latha: Do the companies make the money or do the dealers make the money?

A: It is always the manufactures increase the price. The dealer’s margins are fixed on a per pack basis irrespective of price.

Sonia: This price hike is not supported by any concrete increase in demand?

A: Not yet, but what happens is, this shortage of logistical support coincides with the start of the pick up in demand. As we see January-February-March are the three months where the demand picks up, for various reasons; government departments have to exhaust their budgets and they have to finish lot of work before the end of the financial year. As well as the fact that before the monsoon lot of work has to be finished. So, we are seeing this is eventually is being supported by the rise in demand and therefore we see the prices going up right up to May.

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Latha: What is the total over capacity in the industry now?

A: Roughly speaking it would be about a 100 million tonne.

Latha: In percentage what is the capacity utilisation?

A: Capacity utilisation is close to 68 percent.

Sonia: Do you reckon that this lower capacity utilisation, you are saying 68 percent, there are cement makers who have suggested that it has been as low as about 50-55 percent as well. Do you think these low utilisation levels will continue from hereon?

A: No, they vary from region to region; when we take the country as a whole it does not give a clear picture because this varies very substantially region to region. The imbalance in the demand-supply equation varies substantially. Like in the south it is quite skewed in favour of supply while in the north it is not so. So, generalising by and large this figure really does not help.

In the north it is quite adequately poised, the ratio, so we going forward yes, the demand will pickup and the prices will go up in north for sure. However, south may be is a matter of concern as far as the demand is concerned. Prices will be steady but not really shooting up.

Latha: Do you see any green shoots of demand? Is this just a routine seasonal demand improvement or is it at least a little better than what it was average 2014? Finally are cement manufacturers seeing an improvement in margins because of fuel and other cost falling, if you could give a number to it?

A: There is a pickup in demand; the demand has grown by about 6-6.5 percent year-on-year which shows a slight upward trend as compared to the last year. However, it has not moved up as much as required because there are lots of projects which are still on the anvil and which haven’t been implemented as yet. These were supposed to come on stream by October but have not yet for various reasons financial, political or what have you. We will see that coming forth sooner than later but may not be prior to the monsoon so yes the demand will be moving up, has moved up a bit but not as much as required.

To answer your second question yes, the margins have improved. I cannot put a figure exactly because it is different region to region but lowering of cost and the prices going up have definitely proved beneficial for the margins.