Cement prices rebound to pre-demonetisation levels: ICRA

Credit rating agency ICRA has recovered to pre-demonetisation levels of prices of key commodity such as cement in April 2017.

As per ICRA, the cement prices have been negatively impacted in the west, east and south following post-demonetisation, have rebounded. In the northern region, prices have remained relatively stable, displaying relative in-difference over the last six months, despite demonetisation.

"With the impact of demonetisation gradually subsiding, cement prices have reached the pre-demonetisation levels in April 2017 in most markets. Going forward, we expect prices to be supported by a marginal improvement in capacity utilization," said Senior Vice President and Group Head ICRA, Sabyasachi Majumdar.

He further said that the slowdown in new capacity addition and improvement in the supply-demand scenario in FY2018 should support capacity utilization levels and thereby cement prices.

As for region-wise price trends in the past six months, in the Ahmedabad market, the prices, which had declined by 17 percent during October 2016 - January 2017, started a rebound from February 2017 onwards and increased by around 19 percent to Rs. 265/bag in April 2017.

Similarly, in Hyderabad, the cement prices had declined by 16 percent during November 2016 - March 2017. However, a steep hike in the cement prices in the month of April 2017 by around Rs. 60/bag (27 percent growth) on an MoM basis, pushed the prices up to Rs. 325-330/bag.

This has largely been driven by a supply moderation and pricing discipline. In the East, there has been a moderate decline by seven percent during November 2016 - January 2017. In this region, the demand is primarily supported by Government projects and the IHB segment, which saw an increase in cement prices by six percent in March - April 2017.

On all-India basis cement production reported a de-growth of 1.0 percent in 11M FY2017 to 255 million MT. Demonetisation impacted cement volumes which declined by 10 percent during November 2016 - February 2017 when compared to the corresponding previous period.

Looking ahead, ICRA expects cement demand to grow by around four to five percent during FY2018, mainly driven by a pick-up in the infrastructure segment - mostly housing, road and irrigation projects.

Further, the increased budgetary allocation for the infrastructure sector, which includes roads, railways, metro, irrigation and housing, during FY2018 will directly and indirectly support cement demand.

Also, higher rural credit and increased allocation for rural, agricultural and allied sectors, including the demand for rural housing, are expected to be significant contributors to the overall cement demand.