Cement makers have curtailed production following poor demand amid an active Southwest monsoon and a fall in realisations in August.
Besides weak demand, South-based cement companies suffered a double whammy due to excess capacity.
On the production front, high raw material prices and erratic power supply took a heavy toll on companies with comparatively lower production capacity. “Production in August was down largely due to annual maintenance work we had undertaken in some of our plants. Since demand was down, we stretched the repair work a little longer,” said a senior executive of a cement company.
Holcim-owned ACC, the second-largest cement manufacturer, recorded the seventh consecutive monthly decline in sales in August. ACC production was down 4 per cent at 1.56Mt (1.63Mt) in August, while group company Ambuja Cement reported that its output fell marginally to 1.41Mt (1.42Mt). Aditya Birla Group cement output was up marginally by 0.81 per cent at 2.95 mt. Jaiprakash Associates, predominantly North-based, reported an increase in despatches due to doubling of capacity and because the markets it operates in are still better than the other regions.
The northern region registered double-digit growth of 12 per cent in the first quarter of this fiscal while the South has consistently been pulling down the overall growth of the industry.
With no visible improvement in demand in the southern market, some cement companies based out of Andhra Pradesh have started moving their stocks to the western region, including Maharashtra and Gujarat, where demand is subdued due to monsoon. However, with no major capacity additions, prices have remained stable.
The higher-than-expected monsoon may revive demand for cement in the next few months as infrastructure development picks up speed. Good monsoon generally improves income of farmers and rural demand, as a result. The improvement in earnings fuels housing and construction activities and, eventually, cement, said an analyst.
The expectation of demand revival coupled with the recent fall in coal prices may bring in some respite for cement manufacturers who have been reeling under high raw material costs.
Source: Business Line, India