De­mand for ce­ment re­mains weak as prices firm up

Fall­out of mon­soon, pass­ing on of higher pro­duc­tion costs

The Hindu Business Line - - NEWS - Grow­ing chal­lenge

Ce­ment de­mand across the coun­try re­mained weak while prices con­tin­ued to re­main firm as ce­ment com­pa­nies passed on the in­cre­men­tal pro­duc­tion cost to con­sumers.

Ce­ment pro­duc­tion in the first five months of this fis­cal fell 3.2 per cent to 117 mil­lion tonnes against 121 mil­lion tonnes in the same pe­riod last year. Wide­spread mon­soon across the coun­try im­pacted de­mand in Au­gust and Septem­ber re­sult­ing in 3 per cent fall in de­mand.

De­spite weak de­mand, ce­ment prices in­creased across re­gions as com­pa­nies passed on ris­ing cost to con­sumers to pro­tect their mar­gins. Among key raw ma­te­ri­als, pet coke prices in­creased 12-15 per cent in the sec­ond quar­ter of this fis­cal. Power and fuel cost also regis­tered a sub­stan­tial rise due to in­crease in coal prices. This apart, diesel prices also moved up by 6 per cent, im­pact­ing the freight ex­penses dur­ing the quar­ter.

Most real es­tate projects faced ma­jor up­heavals with the im­ple­men­ta­tion of coun­try’s largest tax re­form GST, com­ing close on the heels of high value cur­rency de­mon­eti­sa­tion. Roll­out of the Real Es­tate Reg­u­la­tory Author­ity Bill im­pacted de­mand in the western re­gion, the largest ce­ment mar­ket. Short­age in sand sup­ply also posed a ma­jor chal­lenge for con­struc­tion sec­tor.

Sabyasachi Ma­jum­dar, Se­nior Vice-Pres­i­dent and Group Head, ICRA Rat­ings, said ce­ment de­mand in the North (es­pe­cially in Ut­tar Pradesh and Pun­jab) was af­fected due to sand short­age and labour un­avail­abil­ity, while in Tamil Nadu and Ker­ala it was im­pacted by drought (im­pact­ing ru­ral off­take) and weak hous­ing ac­tiv­ity.

The re­cent ban on sand min­ing in Bi­har is likely to im­pact the sales vol­ume growth in the eastern re­gion, go­ing for­ward, he added.

The in­dus­try’s abil­ity to main­tain ce­ment prices re­mains crit­i­cal, given the ex­pec­ta­tions of higher power, fuel and freight costs in this fis­cal, he added.

Based on cur­rent trends, ICRA ex­pects the ce­ment de­mand to re­bound in the March quar­ter as against ear­lier ex­pec­ta­tions of third quar­ter of FY18.

The in­dus­try’s abil­ity to main­tain prices is crit­i­cal

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