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Business News/ Opinion / Online-views/  Cement production: too early to say worst is over
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Cement production: too early to say worst is over

Cement production: too early to say worst is over

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The government’s numbers show that all-India growth in cement production was 8.7% in November and 11.6% in December. The momentum is likely to be kept up in January—the Aditya Birla group has said that cement production and despatches are up 9.76% and 7.35%, respectively, ACC Ltd’s production and despatches for January are up 12% and 12.5%, respectively.

The numbers have sparked some hope among analysts that demand for cement has picked up. The reasons for the higher demand include pre-poll spending and strong rural demand.

A research report by broking firm Sharekhan.com says, “With the revival of infrastructure and private house building activity, the cement industry has given an impressive performance in the last two consecutive months. But sustaining such growth is uncertain, as the real estate segment, which consumes about 55% of the total cement produced, has still not revived due to overall economic slowdown. However, we expect that the overall volume growth in FY2009 will be certainly ahead of street expectations. Further, cement companies are also expected to benefit from softening coal and crude prices."

There is, however, also a base effect at work here. According to analysts at Morgan Stanley, the y-o-y growth in the three-month moving average of cement dispatches was at a low of 4.9% in January 2008, which is why they expect high growth of 11.4% in the three-month moving average of cement despatches for January 2009. In February 2008, however, the three-month moving average went up to 8%, which means that it’ll be difficult to show high growth in February 2009.

But perhaps the biggest reason not to set too much store by the rebound in cement despatches is the opinion of the cement producers themselves. The Grasim management, for example, points out that although cement demand can be expected to grow in line with the gross domestic product growth, prices and margins will come under pressure in FY10 as more capacities come on stream.

Write to us at marktomarket@livemint.com

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Published: 04 Feb 2009, 10:42 PM IST
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