Cement prices remain under pressure in north Indian markets
Prices of cement rose more than Rs10/bag in west and south India, were flat in east, but declined by Rs3/bag in the north and central markets in May
Cement prices are slowly inching up on an all-India basis. They increased by Rs5/bag month-on-month in May to Rs331/bag, on the back of a Rs4 increase in April, showed a recent dealer check by Kotak Institutional Equities.
One cement bag weighs 50kg.
Prices of the building material rose more than Rs10/bag in west and south India, were flat in east, but declined by Rs3/bag in the north and central markets in May. While cement prices in central India did see some improvement in April, the downward trend continues in the north. As the chart alongside shows, prices have fallen nearly 10% in the past year in the region.
Within the region, the correction was the steepest in Himachal Pradesh (Rs10/bag). Prices in Delhi and Haryana were down by Rs5-7/bag, while they remained flat in Rajasthan, showed the dealers’ survey.
Clearly, overall demand is not strong enough to sustain prices, which is particularly disappointing for the Street, given that this is traditionally a strong construction season. That, coupled with an aggressive ramp-up of capacities by major cement producers has added to the pressure on prices in the north.
For instance, pan-India cement company UltraTech Cement Ltd is ramping-up assets acquired from Jaiprakash Associates Ltd. The utilization level of the said cement units picked up from 51% in the December quarter to around 75% in the three months ended March, the company’s management said in post- earnings conference call.
Rival Shree Cement Ltd too commissioned a grinding unit with a capacity of 3.6 million tonnes per annum (mtpa) in Sri Ganganagar in Rajasthan during the March quarter.
Mid-cap cement producer JKCement Ltd has also announced the setting up of 2 mtpa grinding unit in Mangrol and Nimbahera in Rajasthan by fiscal year 2020.
Also, once a decision on Binani Cement Ltd’s acquisition is reached, ramp-up of its assets would have a bearing on cement prices in the Rajasthan region.
Apart from that, some analysts pointed out that cement prices in cities such as Amritsar have not seen much improvement, because of increased supply of Pakistani cement, available at lower prices of around Rs260-265/bag.
In short, increased competitive intensity in the north is expected to keep cement prices depressed in the near term.
In the current scenario of constantly soaring input costs, subdued prices would translate into weaker realization growth for north-focused cement companies in the June quarter of the current fiscal year.