Despite robust cement sales in October, caution remains on demand

After four months of continuous poor performance in sales, October has brought unexpected relief for the domestic cement industry. The initial statistics from top cement majors suggest sales volume growth may be in double digits which could be as high as 20 per cent.

However, industry analysts and cement players said it might be an aberration and not a true picture of the recovery in demand. They added that sustainability of demand was still unclear, unless more months showed the same trend.

In the first half of the current financial year, the industry grew by a mere 5 per cent. Industry players expect a 10 per cent growth in FY11.

With profits in the September quarter down by as high as 80 per cent, pick up in sales is a comfort for global cement major Holcim and domestic giant Aditya Birla, which together control over one-third of the Indian market. Collectively, these two companies posted a growth of close to 19 per cent in sales in October.

Other smaller firms too have shown significant rise in sales. Rather, their growth is more impressive than the biggies of the sector. For instance, sales volume of Dalmia Cement was up 35 per cent while that of OCL and JK Lakshmi were up 30 per cent and 14 per cent, respectively.

ACC, part of Holcim, came with a big surprise as after a long lull the company reported positive sales. It saw its despatches going up 13.61 per cent while production was up 16 per cent. The company’s capacities, commissioned in the early part of the year, seem to have stabilised.

Hari Mohan Bangur, chairman and managing director of Shree Cement, said, “Last month saw good demand but still we need to look at how the current and next month perform.” Shree Cement, a dominant north major, witnessed a growth of 20 per cent in its sales volume in October.

Reports suggest that in October there was stocking by dealers which also contributed in the rise in despatches. “All of a sudden, there cannot be such a rise in construction activities at a time when some parts of the country still had rains,” said a Mumbai-based analyst at a domestic brokerage house.

Since, he added, there have been recent price rises in cement in across the region in October, dealers anticipate further rise in cement prices. This made some of the dealers to stock more cement bags.

The current national average price of a cement bag of 50 kg is around Rs 235. A month before it stood at Rs 220 a bag.

Managing director of mid-sized cement company, said, “Price rise was essential as we were making losses at selling every bag of cement. At some point, it is better to stop selling material than making continuous losses.” The southern region saw the steepest rise in cement prices, to the tune of Rs 40-60 per bag.