Demand for cement remains weak as prices firm up
Fallout of monsoon, passing on of higher production costs
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.