Demand for cement in south looking up: Industry

End of political issues in Andhra Pradesh and overall positive sentiments leave the industry in hope for better tomorrow

After touching a trough, cement prices are starting to look up in South, the largest cement market by volume. The key reasons for the poor performance of industry in this part of the country was the political turmoil in Andhra Pradesh and the low sentiments in the overall economy, said industry representatives.

According to cement manufacturers, cement prices, per bag (of 50 kg) in Tamil Nadu increased to Rs 330-350, compared with Rs 300-330 a bag a year ago. Prices in Karnataka varies, as in Bangalore it is Rs 280-290, while in Mangalore it is Rs 310 a bag. In Kerala, the price range is Rs 325-330 up Rs 15 compared with last year.

Compared with these prices, in North India the prices of cement is in the range of Rs 265-350, said cement manufacturers AP has been facing a serious issue of over capacity coupled with a big slump in demand. Besides, the prices were static. In Hyderabad, the present rate is around Rs 230, while in coastal parts of the state and Visakhapatnam it was Rs 260-270. In Rayalaseema, it is Rs 280-290 per bag. Here, the prices are Rs 20 more than December rates. It may be noted, bulk of the capacity in South India comes from here.

A decline in demand has helped cool the prices across the southern states in the last 12 months. For the last several months, no projects, be it in the housing sector or in infrastructure, have been moving.

The political turmoil in Andhra Pradesh, coupled with challenges in power supply in key southern states, has led to a sharp fall in cement growth to 1 per cent CAGR during 2010-14 compared with 9 per cent during 2006-10, according to a recent Motilal Oswal report. It also stated that while there was no regional preference for the long-term, there would be a cascading impact on cement prices. In the near to medium term, markets other than south India should do well.

The total capacity in South India is around 125 million tonne, while the consumption is only around 56 mt apart from another 10-15 mt exported to other states and to neighbouring countries. Capacity addition has been maximum in South and demand slump was also maximum in the region.

However, signs of growth are slowly re-emerging. The bifurcation of AP and the special status likely to be provided to the residual Andhra Pradesh is expected to revive economic activity in the region with a pickup in demand for infrastructure, which augurs well for the industry, said India Cements vice chairman N Srinivasan. His company has four facilities in Andhra Pradesh.

An industry expert said that the current pricing environment is stable in South India, as it is hopeful of a demand recovery in South India and especially after the resolution of Andhra Pradesh issue.

Now since optimism is back in various sectors, especially real estate, things started moving up, the rates started increasing marginally though not to the extent of growth in North, said an industrial expert. This is mainly owing to the excess capacity in the Southern States.

South India needs minimum demand CAGR. Yet, utilisation would remain below par, with high risk of hurting pricing power. However strong recovery in Andhra Pradesh could lead to positive surprise, said Motilaloswal.

It may be noted, competitive intensity is maximum in the South, while the East is better placed, with highest market condition. Despite better dynamics, West and Central India may get impacted by spillover of issues in South.

Industry hopes that a good monsoon will also boost the demand and in turn will increase the rates.