Photo: Bloomberg
Photo: Bloomberg

Cement prices correct further in July as seasonal demand weakness intensifies

  • Earnings released by cement companies so far show that volume growth is poor
  • According to analysts, given the current demand scenario, a further cut in cement prices cannot be ruled out

As anticipated, cement prices across India corrected further in July as demand remained subdued due to off-season.

Cement dealers survey by Reliance Securities Ltd showed that all India average cement price declined by nearly 10-12/bag month-on-month in July to 314 from 325. One cement bag weighs 50 kilograms. Further, price contraction in non-trade segment was relatively steeper by nearly Rs5-15/bag more as stated by most dealers.

Non-trade cement is with reference to goods sold by the manufacturer directly to the consumer. Trade cement is sold by the manufacturer to the dealers, who in turn sell to the consumers.

Region-wise, South led the correction, where prices corrected by 25/bag m-o-m, followed by the Eastern and Western regions. However, the average price in Northern and Central region saw a moderate decline of around 4-5/bag each m-o-m in July.

Cement dealers channel check by another brokerage JM Financial Institutional Securities Ltd showed similar price trends. According to analysts, given the current demand scenario, a further cut in cement prices cannot be ruled out.

Meanwhile, earnings released by cement companies so far show that volume growth is poor but realisations have seen a decent improvement. Better realisations due to price hikes taken during April-May along with soft input cost aided operating margins. However, in the wake of current price movement, the rise seen in realisations and margins is unlikely to sustain.

As for demand, it is likely to driven by government spending on infrastructure and related activities. The lull in real estate sector could keep cement demand from the housing sector muted. What could add further pressure to demand are the ongoing capacity additions. The industry is currently operating at capacity utilization level of around 70%. Unless demand significantly catches-up, utilization levels won’t improve immediately.

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