Home >Industry >Infrastructure >Cement prices remain muted as another seasonally weak quarter begins

First and the second quarters of the fiscal year are seasonally weak quarters for the Indian cement sector. Latest dealers' channel check by Kotak Institutional Equities (KIE) Ltd, showed that all-India cement prices declined by 1% to Rs366/bag in July. One cement bag weighs 50 kilogram. This was on the back of easing supply-side constraints and moderating demand with pick-up in monsoon across India.

Region-wise, price cuts in July were pan-India barring Central and Western India. Prices in the South declined 1% month-on-month (m-o-m) after a sharp 19% hike in May. Prices fell in North, and East markets by 2%/1% m-o-m, while prices in West and Central India remained resilient, despite poor demand. Historically, cement prices corrected by nearly 2% quarter-on-quarter in the September quarter due to seasonality, said the KIE report published on 17 July.

Dealers cited an array of factors that continue to weigh on cement demand and consequently prices. For instance, in the North, dealers said lack of new construction activity due to high cost of labor, fear of extension of lockdown and lack of credit as key headwinds, along with pick-up in monsoon.

As per government data, cement demand declined 22% on a year-on-year basis for May 2020. KIE’s checks suggest that demand recovery is weakest in South and West and strongest in East and Centre, this is similar to the trend reflected in MGNREGA data. MGNREGA is short for Mahatma Gandhi National Rural Employment Guarantee Act. In a bid to boost employment opportunities for migrants in rural areas, the government has increased its focus on various employment schemes.

Meanwhile, ACC Ltd will be the first cement company to announce its June quarter earnings on Monday. The cement sector is expected to post a steep decline in volumes in the June quarter. Companies having higher exposure to the South and West India, would be the worst hit in terms of volumes. Realisations, however, may improve sequentially aided by the price hike announced in May. Operating costs are likely to remain stable on benign raw material costs.

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