Cement demand slackens on slowdown in realty, infrastructure

Cement companies seem to be cutting down production on the back of falling demand from infrastructure and real estate sectors.

Holcim Group companies ACC and Ambuja Cements have reported 6 per cent and 12 per cent drop in month-on-month sales at 2.05 million tonnes (mt) and 1.86 mt in April. Ambuja Cements' sales in April were down 3 per cent compared with 1.91 mt registered last year.

According to market sources, other cement majors such as UltraTech Cement and Jaiprakash Associates, which are yet to announce their monthly sales data, too have seen a similar trend.

Notwithstanding the fall in demand, cement companies in April hiked prices by Rs 10-Rs 20 a 50 kg bag across regions due to sharp increase in coal and fuel cost. The average price in the western region was Rs 260-275 a bag, while it was Rs 230-245 a bag in north India.

In Andhra Pradesh, which has witnessed huge capacity additions and drop in demand, prices are ruling at Rs 175-190 a bag.

The eastern region has seen much improvement in prices at Rs 260 a bag, said a dealer.

Cement companies have been pushing up prices since February citing spike in raw material cost.

This has resulted in most of the companies reporting a higher realisation, but the price hike was not enough to make up for the cost push.

For instance, ACC realisations in the fourth quarter of last fiscal increased to Rs 194 a 50 kg bag, an increase of 11 per cent quarter-on-quarter, but it reported 13 per cent drop in fourth quarter net profit.

“Going ahead, we expect the cost increase to continue, putting pressure on margins especially if the demand for cement slows down,” Mr Ravindra Deshpande, Research Analyst, Elara Capital.

The industry's demand growth in the financial year 2010-11 at 5.3 per cent was the lowest in the last 10 years.

The industry has added 28 mt in FY'11 in addition to 60 mt in the preceding fiscal. These capacity additions have led to a surplus situation.

With very little room to increase prices further, cement companies have been cutting down their production so that they can protect their margins to an extent, said an analyst.

Cement demand was hampered by the general slowdown in the infrastructure and real estate sectors due to rising cost of finance.

The Reserve Bank of India had hiked key rates – repo and reverse repo — six times in 2010 by 0.25 per cent each. It hiked these rates by another 0.50 per cent this month making lending rates across all loans costlier, leading to a fall in demand.

On the BSE, ACC shares were up one per cent at Rs 999, while Ambuja Cements fell by a similar margin to Rs 139 on Monday.

UltraTrech Cement was down 0.44 per cent at Rs 1,040 and Jaiprakash Associates two per cent at Rs 85.

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