South India cement

South India cement
10 August 2004

South India clearly seems to be slipping. With state-funded construction projects on the decline, cement demand in the southern states has fallen, with Andhra Pradesh and Tamil Nadu turning out to be the worst performers.  Demand for the region as a whole has nose-dived by a whopping 11% during the first quarter, pulling down the industry growth to just around 2%.

In fact, due to a slowdown in construction projects, the South, which is the largest consumer of cement, is the only region to have reported a fall in the current fiscal. Cement demand in Tamil Nadu fell by 15% in April-June ’04 to 1.95Mt, while in Andhra Pradesh too, it fell 15% to 1.77Mt.

The demand decline in Karnataka, which was till recently growing at a frenetic pace, was 10% to 1.81Mt. In Kerala, the demand faltered by 8% to 1.35Mt during April-June ’04.

"The demand situation in the southern states is quite worrying for the industry. In fact, it’s the South that is pulling down the industry growth," says Gujarat Ambuja Cements’ executive director Anil Singhvi.  However, industry officials say the decline has been a fallout of "regulated supplies" by the southern players to keep prices firm. "Dispatches had to be regulated to ensure that prices do not weaken as supplies in the region still outstrip demand.

The volume tuning was largely responsible for the fall for the industry in the region," said the MD of a leading South-based cement manufacturer. "There is a slowdown in construction activities, primarily in Andhra Pradesh and Tamil Nadu. Contractors have not been paid. The situation is only a little better in Karnataka and Kerala," the official added. Not surprisingly, Madras Cement and India Cements, the two leading players in the region, reported lower dispatches. Last month, Madras Cement’s shipments fell by 6.7%, while for India Cements, the volumes were lower by 18.2%.

The only comforting factor for the industry, during the first quarter, apart from the higher realisations, which grew 15% year-on-year, is the strong demand in the northern states.  Cement demand in the eight northern states, which also includes smaller states such as Uttaranchal and Jammu & Kashmir, have, on the contrary, grown by 9% during the current fiscal, with Delhi reporting the highest growth at 27%.  Cement demand in the east was flat at 2%, while in the western region, the growth was pegged at 7%, primarily due to higher volumes in Gujarat, where demand shot up 19% during the first quarter.

Analysts say that the demand slowdown in the south is likely to continue as government buying has been on a steady decline.  "Most construction projects are already complete and there are no major initiatives which could tide the fortune for cement makers," said an analyst.  Industry players, however, do not agree. "There will be significant improvement in cement volumes in the second quarter. With prices ruling firm, we expect the current quarter to be profitable for south-based cement companies," an industry official said.

Published under Cement News