Cement scrips were in the limelight on Friday, following rumours that cement prices have been hiked by Rs 5-10 per bag.

Larsen & Toubro posted the highest gains among cement pivotals, rising by 1.19% to Rs 195, followed by ACC (up 0.72% to Rs 154.25), Gujarat Ambuja (up 0.65% to Rs 154.65).

Grasim Industries was down 0.18% to Rs 340, but it recovered from a low of Rs 330.

The renewed buying support for cement scrips were on rumours that cement prices have firmed up by Rs 5-10 per bag in the southern and western regions of the country.

Meanwhile, dealers said the rise in ACC and L&T was on rumours that the Securities and Exchange Board of India may ask Gujarat Ambuja Cements and Grasim to come out with open offers for additional 20% stake in these two companies respectively.

Analysts said the hike in cement prices was a favourable development, but the key question is their sustainability. If the cement prices hold their ground for a few months, then the manufacturers' bottom line may get a slight boost, they added. Earlier in the third week of January 2003 cement prices had dropped by Rs 11-12 to Rs 148-150 per bag.

Cement demand has been robust, but prices have been under pressure. In the current financial year ending 31 March 2003, the cement demand is expected to increase by a healthy 9.5%. Demand growth is expected to be the highest in the South (about 15%), followed by North (9%), West (6%) and East (4%). The demand continues to be driven by the Golden Quadrilateral road project and sustained growth in housing construction activity.

However, analysts are wary of the capacity overhang. They feel cement production must be curbed to prop up prices and secure greater profitability for the manufacturers. The current month would have seen Sanghi Industries' cement plant commencing commercial production, but for the fact that its management has postponed it till March 2003. After that, the supply overhang situation will worsen, putting pressure on cement prices.

Meanwhile, analysts said the current firmness in cement scrips was also on expectations of sops for the sector in the forthcoming Union Budget. Cement manufacturers have demanded duty on imported coal to be lowered, which is expected to bring down the input cost. The other demand put forth by the industry is the continuation of the specific rate of excise duty on cement, reduction in the royalty on limestone, reduction in the customs duty on imported non-coking coal and a greater thrust on the housing sector.

For the period April-January 2003, cement shipments rose by 9.3% to 91 million tonnes from 83.2 million tonnes. Production increased to 91.2 million tonnes (83.2m tonnes). The strong performance is due to the incremental demand from the road sector and a demand pick-up in south India, especially from states like Tamil Nadu and Karnataka.