On a relative basis, the cost of inputs like cement, fly ash, asbestos fibres have gone up at a faster pace than the increase in s. This coupled with increase in capacity, sluggish demand and intensifying competition is leading to fall in margins of the Indian sector.

With 2004-05 as a base, prices have hardened by 36% by August 2011, but the grey cement prices flared up by 52.5%. Similarly, cost of other inputs like slag, asbestos fibre etc have also increased.

Sizeable portion of the asbestos fibre requirements are being imported, with increased environmental consciousness leading to ban on asbestos mining in most part of India. Meanwhile, there are efforts at the industry level to form an Special Purpose Vehicle to purchase asbestos mines abroad, factoring in the current and future demands of Indian sector. But many of the mines are in difficult terrain, including in conducive political atmosphere, and in some cases the valuations sought are also higher.

With improvement in demand and rising costs, the Indian producers are inclined to hike the product prices. The South West Monsoons (SWM) 2011 were 101% of the long period average. Region wise, the rainfall during SWM was 7% above normal in North West India, 10% higher in Central India and 100% of the normal in South India. However, it was only 86% of the long period average in North East India.

During South West Monsoons, there was sluggishness in demand, which forced players to absorb the increase in costs, leading to pressure on margins. However, with South West Monsoons over in September 2011, there is rebound in housing and construction activities. This should boost demand, and can help players to partially pass on the elevated costs through hike in ACS prices.

On the flipside, there is massive capacity expansion in the industry, both by the existing and new players. As a result, competition could intensify further, robbing the pricing power of the sector, amidst sluggish demand and elevated costs.

There is strong expectation of improvement in demand for ACS in the second half of the current fiscal. Two successive years of rise in rural income is the major beneficial factor on which the industry pins hope on. But rising capacity and intensifying competition are slowly robbing the pricing power of the sector, amidst sluggish demand and rising costs. Also, alternatives like Galvanized Iron sheets are witnessing marginal fall in prices, and becoming relatively more competitive from an entry-level price perspective.

A kuccha roof homeowner seeks security and is more likely to graduate to a fibre cement roof rather than a reinforced cement concrete (RCC) slab. The cost of a pucca roof using fibre cement roofing is one-third the cost of an RCC ceiling slab. So, amidst rising rural income, there is tremendous scope for strong growth in demand for ACS in the medium term.