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| Cement industry growth hits 57-month low |
| Chandan Kishore Kant / Mumbai Jul 28, 2010, 00:26 IST |
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 The bull run in cement demand seems to have stopped. Drying of demand from the infrastructure sector and the monsoon’s spread, resulting in less construction, pulled down the growth trajectory to 2.51 per cent in June, the lowest since September 2005. Cement prices have come down 10 per cent in the past four months, while share prices have fallen by 15-30 per cent.
It was in 2005-06 that the sector entered into a high growth cycle, the longest so far. India’s cement industry is the world’s second largest after China, with an annual capacity of 270 million tonnes. It despatched 17.14 mt in June against 16.72 mt in the same month last year. June 2009’s despatches had shown growth of 13 per cent.
According to an industry analyst who doesn’t wish to come on record, no major infrastructure project is on at present.
“There was huge noise about infrastructure projects. However, it is not reflecting on the ground. The near-completion of preparation for the Commonwealth Games in New Delhi has drastically brought demand in the northern region,” he said. Yashwant Mishra, senior joint president and marketing head looking after Mangalam Cement, Vasvadatta Cement and Kesoram Cement, said, “There is a sudden reduction in demand. The monsoon has impacted construction and there is less growth in the infrastructure space. Along with it, there is already the problem of movement of cement due to logistics problems.”
Industry players the current quarter (July-September) may spell another slow growth scenario before the demand revives, post monsoon, in the December quarter. Hari Mohan Bangur, chairman and managing director of Shree Cement, said, “The current month (July) might come up with a negative growth. It should not be a surprise. There is pressure on prices.” ACC, Ambuja Cement, UltraTech (Samruddhi) and Shree are the cement majors having considerable presence in the North.
Jigar Shah, Head of Research, KIM ENG Securities, said, “Going by the potential for India’s economic growth of 8.5-9 per cent, the fall in despatches’ growth to a near-five-year low could be short-term. It has to come back to 8-10 per cent growth. However, performance of the industry in the past few months — falling demand and despatches, with increased cost and squeezing of margins — has been priced in by the stock market. Going forward and looking at the balance sheet of large cement companies, investors should buy cement stocks.”
The northern region had continuously been outperforming the overall growth in the country. However, a dealer check in the north found that in the National Capital Region (NCR), demand for cement haf almost halved. That in Punjab, Haryana and Rajasthan slipped by as much as a fourth in the current financial year. With such a poor show, the overall June quarter got dampened, too, and registered the slowest quarterly growth (y-o-y) since the December quarter in 2007-08, at 6.24 per cent.
The average price has already fallen by 10 per cent from Rs 250 to Rs 225 for a bag of 50 kg. Price variations by region are wide. In the south, prices are currently between Rs 140 and Rs 190 a bag.
In the west, Mumbai is still commanding Rs 245 a bag; in Gujarat, a bag is available below Rs 230. In the north, prices are Rs 225-230 a bag. On the non-trade (institutional sales) segment, the price has come down to Rs 180 for a bag. The east is still showing resilience at Rs 260-280 a bag.
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