Cement prices crack as fiscal starts

An edited version of this story first appeared in DNA Money edition on Thursday, April 18, 2013,

If March 2013 was very unlike the business month it generally tends to be for the Indian cement industry, April isn't looking any better either.

Lack of demand, delay in government spend pick-up and weak rural demand have lead to correction in cement prices across some key markets in the country. Feedback from cement dealers indicates continued weakness in demand for the April month leading to price correction in most markets to the tune of 3-6%.

According to JP Morgan analysts, the sharpest decline has been witnessed in Western India -- where demand has also been impacted by the drought situation -- and in Southern India driven by sharply lower prices in the key state of Andhra Pradesh (AP).

Confirming the price correction, Pinakin Parekh and Neha Manpuria, research analysts, J P Morgan India Pvt Ltd, said in a note on Tuesday that cement supply discipline is under pressure as demand remains weak. "We are surprised by the quantum of price correction seen in AP, where prices are down below Rs 200 per bag of 50 kg, as some of the new capacities are selling aggressively. The other interesting feedback we have received is that of higher shipments from AP into neighboring states and this highlights AP’s overhang on Southern and Central India. The price correction has been equally sharp in Western India, with prices down sharply in both Gujarat and Maharashtra. Every single market has seen cement price correction in April," the analysts said.

Industry players are of the opinion that government spending should re-start at some point however, the situation will remain weak till then. At the recently conclude ACC Ltd annual general meeting (AGM), Kuldip Kaura, MD & CEO of the company told shareholders that cement growth is not doing good and is less than expected. "There is normally growth in election year but we are yet to see that trend," he'd said.

Echoing the sentiments, JPM analysts said that election led spending should start at some point over the next few months and government spending should also recover from the current very depressed levels. The analysts however expressed concerns over possibilities of rural demand deteriorating thereby taking away some of the government led incremental demand. "The other issue is the drop in cement prices in the interim. Cost trends continue to inch up especially in energy (diesel) and with lower aggregate demand, there is less supply discipline and hence more price competition," the analysts said in the note.

As for the correction trend in cement pricing is concerned, a dealer check in various regions of India by Anand Rathi Shares and Stock Brokers Ltd (ARSSBL) shows that the western region is expected to see further cuts in cement prices.

Anand Rathi research analysts Jaspreet Singh Arora and Manish Valecha said in a note on Wednesday that prices dipped by Rs 20 in Pune, with retail/wholesale prices at around Rs 275/Rs 245 respectively. "With no improvement in demand foreseen and water-shortage issues escalating in summer, further price cuts may be seen in the current quarter. Nagpur has seen no uptick in demand in April, with retail/wholesale prices hovering around Rs 290 / Rs 270. Mumbai retail prices have been static at Rs 310 even as demand is flat month-on-month," said the analysts.

Prices across various pockets in the eastern region either remained flat -- like in Kolkata -- or down Rs 10 in case of Bhubaneshwar. Though realty sector remained strong, slowdown in infrastructure projects led to poor demand. "Retail/wholesale prices in Bhubaneshwar are Rs 340 / Rs 290. Patna has seen prices dropping by Rs 20 in April due to slack demand -- and current retail/wholesale prices are around Rs 305 / Rs 290," the analysts added.

Cement prices in south India were under pressure mainly due to increased influx of material from AP. Despite good demand, Bangalore saw a correction by Rs 15 per bag of 50 kg and the current retail/wholesale prices stood at Rs 310 / Rs 275. Hyderabad (retail price Rs 200) and Visakhapatnam (retail price Rs 210) continued to suffer from a capacity glut and an increase in supply from JPA and JSW. Retail/wholesale prices in Chennai are around Rs 305 / Rs 265 even as demand continues weak.

A northward trend (increase by Rs 10) was witnessed in cement prices in north India where current retail/wholesale rates are around Rs 260/Rs215 respectively. However, prices remained flat in markets like Delhi and Gurgaon despite attempts by manufacturers to raise prices.