Cement stocks soften after a month-long rally

Shares of cement companies have started softening after a month-long rally, as cement makers are increasingly finding it difficult to sustain higher prices of the building material.

Over the last fortnight, cement prices in major regions — north, west and east — have slipped Rs 5-10 for a 50-kg bag due to reduced offtake after mid-March. During the March quarter, the all-India cement price had touched as high as Rs 285 a bag, 25 per cent more than the December quarter price of Rs 225 a bag.

“After the northern and western regions, east too has fallen in line as cement prices corrected. This impacted the performance of cement stocks. However, during this time, the broader markets too have corrected, which had affected investment sentiments. But it is too early to say if cement stocks would slip further in the near future,” said an industry analyst at a domestic brokerage house.

According to a note from Sharekhan: “The cement sector may underperform the broader market in the coming six to nine months. The key risk remains the failure of cement players to adhere to supply discipline, which may result in a higher-than-expected fall in cement prices after the second quarter of 2011-12.”

UltraTech Cement shares on Monday fell close to five per cent to Rs 1,078.5 from its monthly closing high of Rs 1,133.8. Similarly, Shree Cement dipped over six per cent, while shares of ACC, Ambuja and India Cements were down close to three per cent, 1.6 per cent and 3.74 per cent, respectively.

Last month, cement stocks were among the outperforming counters, as analysts estimated a better quarterly performance, compared to the first three quarters of the previous financial year. With consistent price surge, particularly after the Budget, sector experts had said companies would be able to take care of the cost rise seen during the quarter.

Cement players and analysts expect demand to increase till May, which could support prices further. However, with no major infrastructure projects taking off, expectation of high growth trajectory remains doubtful. Cement dealers have already indicated that companies are trying to offload supply from expanded capacities, which would result in further corrections in prices.