Demand from the rural sector, owing to increased momentum of panchayat works and some revival from individual house builders, saw cement prices heading north this month. This is expected to increase further around mid-January.
According to broking firm Anand Rathi, a channel check from dealers has revealed that demand has slightly improved in most regions although the liquidity issue continues to persist.
On Monday, prices were hiked by Rs 20 a bag in eastern and western regions while it increased by Rs 10 a bag in the central and northern regions.
“Dealers expect the Rs 20 per bag price hike announced in the south to be implemented after Pongal,” the firm said, adding, “A second round is expected in mid January.”
The hike is substantial compared to the previous hike (which is marginal) that the cement companies registered during November last year.
In the northern region, prices increased marginally by Rs 5 a bag since August. This took the average to Rs 325-Rs 335 although volume has been on a decline by 5-7 per cent. In the eastern part of the country, like the north, prices have been increasing since September to around Rs 315-325 a bag. In the west, prices improved since the last month to go up between Rs 325 and Rs 335.
In December 2019, prices remained mostly flat and had declined in some pockets.
“If we look at the price movement region-wise, we have seen prices cooling off by 10-15 per cent from their peak of Q1 FY 2019-20 and there is some recovery,” Kunal Shah, an analyst at YES Securities said.
After the price hike this month, prices in the northern, western and central region are ranging between Rs 340 and Rs 345 a bag while in eastern India, a bag is now priced between Rs 320 and Rs 330.
Cement volumes in November 2019 grew 4 per cent.
“Prolonged monsoon and liquidity crunch had affected demand but it is recovering particularly in rural areas. Road construction is also picking up. This is expected to boost demand further,” an industry official said.
According to HM Bangur, managing director at Shree Cement, demand is expected to improve substantially in the near future owing to increased activity in government projects and pick up in the individual house builders segment.
These two segments, taken together, account for around 50 per cent of the total demand.
“I think soon there is going to be a pick-up in government projects and the individual house builders segment. This will help sustain the price increase, which is entirely demand led,” Bangur said.
Sharing a similar view that apart from demand pick up in the government segment, affordable housing will also generate demand, Sandip Ranjan Ghose, chief operating officer (COO) at Birla Corporation, said, “There is no reason to believe demand won’t pick up”.
However, demand from the real estate segment, which is around 10-12 per cent of the entire cement market, is expected to remain flat.
“The only weak link in the chain remains large real estate projects which are mired in their own problems; but, it should be partially offset by development of suburban and small towns – smart cities and low-cost housing,” Ghose added.
Industry officials pointed out that overall, there has been around four per cent price increase on both year-on-year as well as on a sequential basis after the monsoon and the festive season.