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Cement despatches signal robust demand

Cement despatches signal robust demand
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First Published: Thu, Mar 04 2010. 01 15 AM IST

Updated: Thu, Mar 04 2010. 01 31 PM IST
Cement despatches during February indicate that the industry continues to be on a relatively strong footing. For instance, Aditya Birla Group’s cement despatches grew by 9.4% on a year-on-year basis during the month.
It was earlier assumed that large capacity addition this fiscal would lead to a drop in utilization rates as well as a fall in cement prices. But demand has been stronger than expected, leading to a firming up of cement prices in the last couple of months. According to IIFL Capital, “Cement prices have risen by Rs20-80 per bag in the last two-three months, with utilization improving in the peak construction season.”
Graphic: Yogesh Kumar/Mint
There remains a divergence between the southern and northern regions, with the latter doing much better.
In fact, in the south, prices continue to be under pressure after having dropped sharply from the highs of mid-2009.
In the north, while prices fell in the second half of 2009, they have strengthened in the past couple of months and in some cases prices are back to the levels prevailing in mid-2009.
But this scenario may change from May/June this year as the peak construction period comes to an end. Besides, the industry’s total capacity, too, would increase considerably.
For instance, in the northern region, Jaiprakash Associates Ltd’s plant in Himachal Pradesh is expected to be commissioned soon and stabilize in the first half of the next fiscal. All this will lead to a correction in cement prices.
According to IIFL’s analysts, “Price declines in the north would be particularly sharp… (but) price recovery in this region is likely to be robust after a price fall in 2Q and 3QFY11; in the south, price recovery is likely to take longer.”
Capacity utilization in the south continues to be much lower compared with the northern region, and this is expected to continue in the next year.
It’s not surprising, then, that shares of India Cements Ltd (with exposure to the south) have underperformed the market by a huge margin this fiscal while shares of ACC Ltd (with a countrywide presence) have risen in line with the broad market.
Write to us at marktomarket@livemint.com
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First Published: Thu, Mar 04 2010. 01 15 AM IST