Rising prices, profitability may moderate for cement sector

The cement industry is likely to see a decline in demand growth in the current financial year. April statistics from the Cement Manufacturers Association (CMA) showed year-on-year growth of 8.6 per cent, compared to 13 per cent in the same month last year.

In April, manufacturers sold 18.13 million tonnes of the building material against 16.7 mt last year. On a month-on-month basis, it is a decline of 7.6 per cent.

In 2009-10, the industry had witnessed a four-year high in growth of 10.5 per cent, by despatching 200 mt. Manufacturers and industry analysts still maintain the growth in 2010-11 would be between 8 and 10 per cent.

“Last year, growth was largely supported by the pre-election spending on infrastructure and high growth scenario in the north, due to the Commonwealth Games. Even cement exports had doubled during this time last year,” said the research head on cement in a domestic brokerage firm.

However, he added, last month did not see any such trigger which could push the demand significantly up.

Industry experts said demand would remain strong in absolute terms but in percentages, may not be as it was last year.

Hari Mohan Bangur, chairman and managing director of Shree Cement, the North Indian major, said: “Industry has registered a healthy growth in April. And in the current financial year, industry is likely to end with 8-10 per cent growth.”

CONCRETE POINTS

> Prices decline Rs 7 a bag of 50 kg

> Further dip of Rs 10 likely

> Month-on month growth down by 7.74 %

> High profit period for the industry gets over

Though demand will remain positive on the back of infrastructure and construction activities, industry’s concern is the weak pricing scenario despite increasing costs, likely to deepen as further capacities go on stream.

From October till March, cement makers continuously raised prices. A softening of prices has since set in as stabilising incremental capacities have started contributing to production.
 

DESPATCH GROWTH SINCE JANUARY 2010
Month	Despatch	Growth % (y-o-y)
January	18.19	12.77
February	17.11	6.34
March	19.63	8.33
April	18.13	8.56
All figures in million tonnes Source: Cement Manufacturers’ Association and companies

Already, on the national average front, there has been a drop of Rs 7 for a bag of 50 kg. This dip has brought the average cement price to Rs 243 in May from Rs 250 a bag in April this year.

“Monsoon, too, is being reported to be normal this year. We expect a further fall of around Rs 5-10 a bag till June,” said another industry analyst.

Agreeing, Bangur said, “There could be little bit of further softening in prices. There is a definite trend that price will not go up from current levels, irrespective of cost increases.”

This will have its impact on profitability, he added.”Now, industry will enter into a normal profitable cycle, against the higher profitability it enjoyed for the last five years.”