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Cement companies are set to unveil disappointing results for the December quarter. High raw material and fuel costs coupled with poor demand have been the major party poopers.
Demand was barely 5.3 per cent in this period with the exception being October at 18 per cent. This, in turn, was largely due to restocking by agents following poor sales in the preceding four months. It was virtually impossible for the real estate or infrastructure companies to place such huge orders, said an analyst.
Growth in demand was hit by unseasonal rains, a slowdown in the southern region and poor offtake in the real estate sector. India Cements showed a sharp increase in sales when it added fresh capacity of 1.5 million tonnes in Rajasthan in August.
Demand in the Eastern region remained firm with growth of 12 per cent thanks largely to speedy completion of infrastructure projects in Bihar ahead of the elections. The North was volatile with a fall of eight per cent in November after a growth of 14 per cent in the preceding month. The West did relatively well with 15 per cent growth in October and November.
Given the political instability in Andhra Pradesh and a tepid showing in other States, the Southern region is expected to see a decline of five per cent in consumption during the quarter, said Mr Kamlesh Bagmar, Research Analyst, Prabhudas Lilladher.
Capacity utilisation falls
Capacity utilisation fell to 74 per cent in the third quarter from 84 per cent recorded in the same period last year due to 50 million tonnes of new capacity. However, it was slightly better when compared to 71 per cent recorded in the second quarter of this fiscal.
Despite the drop in demand, bigger brands had to keep up production to guard their market share from smaller players, said an executive in North-based cement.
Muted demand
Impacted by muted demand, cement prices were under pressure since November-end with an average drop of Rs 7-8 a 50 kg bag. “While prices are expected to improve in the fourth quarter, lack of production discipline will impact the short-term outlook. We believe the industry hit the bottom of utilisation and going forward, the foundation for the next up-cycle should gradually be in place,” said an analyst.
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