BackLower cement prices continue to reflect weak demand
Cement companies may be facing a dull quarter ending June, with low sales and capacity utilization levels
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Cement prices, which fell in the months of April and May, showed no sign of improvement in the first two weeks of June. Now, with the onset of the monsoon, dealers do not expect the situation to improve anytime soon.
The weak prices reflect weak demand. The subdued trend was seen on a pan-India basis, despite news reports suggesting that more government projects are being bid out. That may be because, as analysts say, hardly any new projects have gotten off the ground.
According to a report by Reliance Securities Ltd, the all-India average of cement prices during May was ₹ 293/bag—marginally lower than a year ago and also lower than that in the previous month.
Some dealers say that cement offtake is weak as payment delays to contractors have brought some government projects to a standstill. Further, a subdued rural economy after unseasonal rains, low minimum support prices and low disposable income have hit rural demand, too.
Another reason has been the moribund real estate market with hardly any new launches since March.
The biggest month-on-month drop in prices has been in the northern region which posted an 11% cumulative drop over the last two months. All other regions, too, saw demand contracting, but for the southern region which seems to be holding up so far.
Any improvement in cement prices in the next 10-15 days will be due to dealers’ intent to lift prices to cushion the drop that is typical during the monsoon season.
The weak demand was reflected in the 2.4% drop in cement production during April, as mirrored in the core industries data published by the government. Cement companies may, therefore, be facing a dull quarter ending June, with low sales and capacity utilization levels.
Analysts say there could be a downward correction in the annual demand growth estimate for 2015-16, given that the first half is unlikely to see a significant uptrend from the year ago period, when prices gained on account of the delayed monsoon.
The only ray of hope is strong demand after the monsoon, given that fresh government orders, especially in the roads and power sector, are in the pipeline.
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