Floods in AP, Karnataka hit cement market in South, India

Floods in AP, Karnataka hit cement market in South, India
Published: 08 October 2009

Extensive flooding in Andhra Pradesh and Karnataka has thrown the cement market in the South out of gear for the immediate future but the recovery phase bodes well for the industry, say industry representatives.

Cement industry representatives point out that calamitous flooding in Andhra Pradesh and Karnataka and the impact it could have on the industry is diametrically opposite to the situation just a couple of weeks back when there were fears of a drought.

The concern earlier about the inadequate monsoon was that it would have had a long-term impact on agriculture and industry. But the current floods would have a short and sharp impact in the near-term with demand picking up later.
Bottlenecks

According to Mr H.M. Bangur, President, Cement Manufacturers Association, the swing between the extreme situations and the adverse impact on transportation severe bottlenecks have been created. The impact on cement prices have been ‘irrational.’ Over the last couple of months, cement prices have dropped by about Rs 40-50 a bag with prices in Andhra Pradesh dropping by about Rs 30 in the last 15 days. The price pressure will remain for some time till the demand picks up.

Mr Sreekanth Reddy, Executive Director, Sagar Cements, felt that it would be a couple of months before demand and cement prices recover. The industry had to contend with slow sales and falling prices due to various other reasons even prior to the flooding. First it was the State elections and subsequently, the delayed monsoon and fears of drought. Since June when a 50 kg bag of cement was about Rs 185 ex-factory, prices have dropped by about Rs 35-40 and are now around Rs 145.
Opportunity

While it is unfortunate that the floods have had a drastic impact, it also creates opportunity for reconstruction, industry representatives said. Dalmia Cements, for instance is to construct 1,000 houses for the flood-affected in Karnataka. Similar initiatives would happen as reconstruction picks up.

A spokesperson for Dalmia Cements said that the immediate impact of the flooding in Andhra and Karnataka would be a drop in sales in the region. But this coincides with the slow season when prices and sales are usually slow in the South. In Tamil Nadu, prices were down by about Rs 20 a bag.

Source: Business Line