Cement prices to remain lowin second quarter
GST and RERA main factors
The implementation of the goods and services tax (GST) and the Real Estate (Regulation and Development) Act, 2016 (RERA) — together with good monsoon, which affected the construction activity — has cooled off cement prices by 2-3 per cent across the country. It is expected that prices will continue to remain low during the second quarter until the bulk of cement dealers switch to the new tax framework.
Sector analysts said the northern, central and eastern markets were particularly hit as most of the dealer base resorted to destocking in June in anticipation of the GST, and that the pace of restocking was not satisfactory. Moreover, dealers, particularly in Tier-2 and Tier-3 markets, were still sceptical of the input tax credit affecting volume uptake, they said.
“It is expected that prices will continue to remain subdued in the second quarter as dealers, mostly in the northern-eastern markets are yet to understand the GST implications and how to claim input tax credit," an analyst with brokerage firm Motilal Oswal said.
Based on cement channel checks, analysts are projecting that in the August-September period, prices are poised to be hit by 2-5 per cent across the five regions.
RERA, as in the case of the GST, has tighter compliance norms, which has slowed down construction activities in the July-August period. Cement prices have been showing a declining trend since the beginning of the current fiscal year after the average prices peaked during April at ~307 a bag, rising by over 4 per cent. After that, the prices began to decline steadily, falling 3.5 per cent in June – the month just before the GST implementation. The prices dropped 6 per cent to ~289 a bag during the July-August as compared to the April prices.
“Demand and cement supply has been sluggish after the GST implementation, and the channel network suggests that sluggishness may continue for one to two more months. Sustained sand shortage and RERA implementation will continue to impact sales," an analyst with Centrum Broking said.
According to the analyst, owing to weak demand, primarily from the channel partners, average trade segment prices (pan India) fell 3 per cent on a month-on-month basis and trade prices corrected by 2 per cent in the north and southern region, 3 per cent each in the central and eastern region, and by 4 per cent in the western belt. He said the price correction in the west had been sharper as prices rose in Pune belt last month against the national price decline implying a higher base correction for the region.
“Overall, dealers are indicating that the steady progress of the monsoon and the impact of GST as well as RERA would further moderate cement offtake. However, marketing executives remain upbeat that a good monsoon would lead to better cement offtake during the second half of the current fiscal year," the analyst said. The impact of sand mining also pulled down cement prices, particularity in Uttar Pradesh, Madhya Pradesh and Tamil Nadu. However, cement company executives are hopeful that the sand shortage owing to several bans by the National Green Tribunal will get sorted out by substituting artificial sand in the near future.