Cement prices stay firm on late rains, strong demand

As against the usual trend of cement prices weakening in the monsoon season (June-September) by nearly 7-8% from its peak, in the current season, overall Indian prices are down by only two per cent so far.  Cement prices are least affected this time since ’99 when prices fell by only 0.8% during monsoons. The current national average price of Rs 147 per bag is nearly 10% higher than the same period last year.  Cement makers attribute this to a better supply-demand balance in the current season than in the previous years.

"Except in parts of south India, demand is now very close to supply and in some markets, demand now exceeds supply. Obviously, prices are at a much higher level in the current season than they were in the past," says a senior official in Gujarat Ambuja. Cement executives also point to the uneven spread of monsoon so far. Usually a widespread and heavy rains in June-September halts construction activity, leading to a dip in cement demand across the country.

In the current season, most parts of the country including the north, west and central are yet to receive adequate rainfall. Consequently, housing construction has only taken a minor hit.  At the regional level, however, movement in cement prices show a marked variation. In the northern region, prices are down by 3-4% from its peak in May, while average realisation in southern states has in fact moved up by 4% on an average.  The upward price movement in the south is despite demand being nearly 20% of short of supply and a sharp 13% decline in cement consumption during the first three months of current fiscal.

According to sources, the slowdown in south has been due to production discipline exercised by the producers - clearly evident from the fact that despite lower dispatch growth, inventories have come down from 6.1Mt at the end of March this year to 5.7Mt by the end of June.  Overall industry volume growth during the first quarter was disappointing, with dispatches growing by only 2.7% year-on-year. A slowdown in South has been the key reason. Consumption growth in other parts have been strong at 8% YoY, with North leading the pack at 9% YoY growth.