Cement price may decline on poor construction sector demand

Demand of construction raw material generally declines in lean monsoon season when most of running overhangs

Sluggish demand from construction sector is likely to pull down cement prices in India in short term. The industrial commodity witnessed a Rs 25 a bag (50 kgs each) fall in prices on m-o-m basis in West Bengal as against Rs and Rs 10 a bag in Vidarbha (Maharashtra) region and elsewhere in the country respectively.

Demand of the construction raw material generally declines in the lean monsoon season when most of running overhangs. Since, the sentiment continues to remain poor over the last few months, there is little room for a revival in demand in the upcoming monsoon season.

Hence, poor demand show is set to continue in the next three months, said an analyst.

Consequently, a further price decline of Rs 5-10 especially in the eastern region except Chhattisgarh, cannot be ruled out. Prices in the northern region i.e. Delhi and NCR are expected to inch upward while in other regions, cement prices are expected to rise by about Rs 10 per bag.

The decline in cement price indicates an overall slowdown in construction activities across the country. Also, lower growth in production was mainly attributable to the slowdown in cement offtake led by the muted construction activity.

The cement industry was grappled with cost pressure in FY13 due to rise in the raw material cost, freight charges, etc. However, the industry managed to pass on the higher input cost through a series of price hikes.

In FY13, the average cement prices increased by about 15.6% on a y-o-y basis.

The long term cement demand in the country is expected to remain intact. Increasing focus of the government on the infrastructure development and promotion of low cost affordable housing will provide impetus to the cement consumption.

Data compiled by Care Ratings showed that cement production in financial year 2013 rose sharply by 5.6% as against a growth of 6.7% it registered in the previous year.

In March 2013, the cement production in India grew by 6.6% on a y-o-y basis as against a growth of 7.1% registered in the same month in the previous year.