Spotlight on Indian market developments
Over the first eight months of 2009, double digit cement growth ranging from 10-18 per cent, buoyant domestic prices and some important corporate mergers have refocused investor interest in the massive Indian cement market – now worth over 200Mta of cement sales. But not all is at it seems, with recent reports coming in pointing to slowing demand, falling prices and worse – too much new capacity flooding the market.
The immediate visible signs are from recent domestic sales, noted at down to 15.4Mt in August, 14.8Mt in September and 15.5Mt in October and a corresponding YoY domestic despatch growth slowing to around 7-8 per cent in October. This trend could now bring down overall annual growth to no more than nine per cent compared to earlier more optimistic forecasts of 12 per cent for the year.
Prices are also causing concern. Average cement prices are down by INR31/bag (13 per cent) since August to a level of INR212 (US$4.55) or an equivalent US$91/t. Citi analysts report that in the north prices are down marginally by 3-4 per cent while in the South they have fallen by as much as 33 per cent, said to be caused by a subdued demand, excess supply and even dumping by some local producers. Some local dealers are projecting further price falls in many regions for the remainder of this year, down to a nationwide average of INR200/bag, although some regional prices could be down to as low as INR150 in some instances (US$64.5/t).
What is now of real concern is the amount of new capacity hitting the markets. In 2007 and 2008 a total of 55Mt was commissioned, while for this year company pronouncements indicate a further 23Mt of new capacity coming into service. With markets visibly slowing, overcapacity is set to become a sizeable problem, especially with current capacity utilisation now measured at around the 80 per cent level and falling.
While industry watchers have recently focused on Aditya Birla and UltraTech consolidation – in effect with Ultratech now emerging as the nation’s No 1 producer with almost 50Mt of capacity, local analysts are said to be taking a more subdued view of the sector, suggesting that most major cement stocks are underperforming – a situation that could be further aggravated as volume growth and prices weaken over coming months. Published under Cement News
