Has the cement industry managed to ward off the worst of the recent economic slowdown?
Strong despatch numbers from cement manufacturers over the past three months and relatively firm cement prices seem to indicate this.
Industry-wide despatches, which grew at 4.8 per cent in October, moved to a healthy double-digit growth in November and December and remained at over eight per cent in January.
The despatches of the top five companies (ACC, Ambuja Cements, Grasim Industries, UltraTech Cement and India Cements) put together for the December quarter show a five per cent growth compared to a 2.5-per cent growth last year.
The northern and eastern regions led demand growth, expanding by 12 and 16 per cent respectively in the December quarter.
The eastern region’s record growth, however, was on a low base in the previous year.
Cement manufacturers cite several reasons ranging from good retail demand from semi-urban and rural areas, to infrastructure spending to higher minimum support prices for crops, to explain this trend.
“The demand in the rural markets of North and East increased due to a very good harvest and remunerative minimum support prices (MSP) announced by the Government.
The disposable funds available in the hands of the farmers were partly used for meeting their basic needs such as housing and the balance was put aside in the form of savings to meet their future needs”, says Mr J. Datta Gupta, Chief Commercial Officer, ACC.
“The main contribution in demand growth in the December 2008 quarter was from the government spending on infrastructure” says Mr Vinod Juneja, Managing Director of Binani Cement.
Players are also optimistic about the growth sustaining over the next couple of quarters.
ACC expects cement demand to grow between seven and nine per cent up to June, riding on the back of retail demand, which has picked up due to government stimulus and rate cut measures.
ACC’s Mr. Gupta expects increased demand from the retail and infrastructure segments to offset the slowdown in the demand from the multi-storey and commercial space.
Binani Cement holds the view that government spending will continue to remain high till the general elections, driving demand, as ongoing projects need to be completed.
Prices ruling firm
With demand strengthening, prices are holding firm. In Mumbai and Chennai, a 50kg bag is quoting at INR260, among the highest in the country, at the previous year’s level.
There are expectations of prices going up further from current levels.
Says Mr Juneja: “Prices are firming up from January following good demand. In the northern and eastern regions, prices have risen by INR10 a bag while in the western region, the increase is INR3-5 a bag.”