Cement sector set to gather momentum

The cement industry is all set to gain pace. The key factors include consolidation process, emergence of tight supplies in select regions and high cement prices.

According to a report by Enam Securities, consolidation is the key to higher cement prices. The process is expected to gather steam as industry fundamentals begin to improve.

Analysts also believe that rising demand and slower capacity addition are expected to lead to tight supply in Central India, Rajasthan, and North and Eastern India. As expected, only expansions (through de-bottlenecking and grinding/blending) are likely to come up over the next two years.

However, analysts expect the surplus to remain in West and South India as the two regions added large capacity over the last two years.

Overall, peak demand is estimated to be 11 million -11.2 million tonne per month vis-a-vis expected monthly capacity of 11.3 million-11.4 million tonne.

Moreover, cement prices have been slowly rebounding to profitable levels over the past few months on the back of improved demand as the construction season has set in. Prices are likely to firm up further in select regions as demand picks up and surplus declines in these regions.

However, surplus and location-specific rivalry would keep prices volatile in few regions, namely south and west India "" particularly Gujarat, where prices are likely to recover by Rs 30 per bag from Rs 90-100, which is the breakeven level.

Indian cement stocks have risen significantly over the last five months, ahead of expectations of significant improvement in fundamentals.