Low demand high supply bring cement prices down

Low demand high supply bring cement prices down
Published: 17 March 2004

It’s apparently uncertain times ahead for the Indian cement industry with significant oversupply and lower-than-expected demand looming large.  Adding to the woes, says an analyst, are the general elections and the traditionally slack monsoon season, which would leave the producers with no choice but to bring down their prices, instead of hiking them as they had planned earlier.  Another factor that may make the producers think twice over a price-hike is the growth in retail demand in the total sales compared with institutional demand.  Because the retail demand is hugely price-sensitive, a hike in price will hit the demand hard, says the analyst. Over the last three years, the retail demand has increased to over 44 per cent from just 29 per cent.  Due to consolidation, nearly 40 per cent of the sector is now con-trolled by the top four players - Grasim, L&T, Gujarat Ambuja Cements and ACC.

According to Cholamandalam Securities the stock prices of cement companies have soared over the past few months despite the weak business fundamentals. And the brokerage house is underweight on the industry.  "For the first ten months of current fiscal year, the industry has recorded a dismal 4.9 per cent growth in dispatches compared to eight per cent for the whole of last fiscal year. Factoring a growth of seven per cent for the remaining two months we expect less than six per cent demand growth for FY04 and 6-7 per cent for FY05," says a re-port prepared by Cholamandalam.

Overall, the large four players reported a volume growth of 10 per cent year-on-year against an all-India demand growth of six per cent. This implies that most of the incremental demand was met by the larger players, resulting in increased market shares. All-India average prices too rose 11 per cent YoY, the highest rise in the last two years. North India was the key driver of cement prices, reporting an average rise of 20 per cent," say analysts.