Cement price correction, India

Cement price correction, India
Published: 22 July 2009

Cement makers in north, central and east India are likely to be the least affected due to the expected cement price correction in the coming quarters. Demand in these regions is anticipated to remain robust, thereby ruling out the possibility of steep price cuts.

The south- and west-based companies will bear the brunt as these two regions have already shown less than the average national demand growth.

Analysts tracking the cement industry told Business Standard that southern and western regions would be the first to crumble as capacity utilisation had dipped considerably and players had started offering discounts on the building material. They added that the southern market would see the steepest cuts, which were expected to begin from the current quarter onwards.

However, experts are maintaining their positive outlook for companies based in other regions. India Infoline, in its recent note, said north and central regions would have stable prices. “We continue to be positive on north-based companies and negative on south-based companies,” the note added.

Companies, including Shree Cement, JK Lakshmi, JK Cement, Binani Cement, Lafarge and Grasim, which have larger exposure to north, east and central markets, will be relatively comfortable for a longer period. However, companies like India Cement, Madras Cement and Dalmia Cement may have to bear the brunt.Giants such as ACC, Ambuja and UltraTech, which have pan-India presence, are expected to see partial impact.

The northern and eastern markets have witnessed an average rise of Rs 7-10 a bag (1 bag = 50 kg) in the last one month, whereas in the central part, in cities like Lucknow, prices have shot up by as much as Rs 40 a bag in the past one month on the back of huge spending by the state government on infrastructure projects.

However, the southern region is lagging behind as discounts ranging between INR3 and INR10 are prevailing in the market as increase in infrastructure spending is not sufficient at a time when newer capacities are in stabilisation mode in the region.

In the April-May period (YoY), according to the latest statistics from the Cement Manufacturers’ Association, the central region outperformed the country’s average consumption growth of 11 per cent by registering a rise of 22 per cent in consumption.