Cement companies have managed to post higher dispatches in January, on the back of improved demand from stockists, who expect revival of real estate projects post an extended monsoon.
Major dealers were reducing their inventory since November, due to uncertainty over cement demand from the real estate sector, as the Reserve Bank of India had hiked key bank rates to tame soaring inflation, said an analyst.
In fact, in the last two quarters, demand growth slackened due to unseasonal rains and extreme winter conditions. The less-than-anticipated rate hike by the RBI gave dealers the much-needed confidence to replenish their stocks, he said.
Government-sponsored infrastructure projects have also gathered momentum leading to improvement in cement demand.
Mr Shailendra Chouksey, Wholetime Director, JK Lakshmi Cement, said that although the company posted a 19 per cent fall in dispatches in January, sequentially, it was up 18 per cent.
“Going forward, demand will look up. We expect the capacity utilisation to improve in the last quarter of the financial year. In the third quarter, our capacity utilisation was at 90 per cent against 96 per cent logged last year,” he said.
The improvement in the availability of railway wagons also helped cement companies keep up their delivery schedules, but at a higher freight cost. With rise in demand, cement companies managed to hike prices by Rs 10-15 for a 50 kg bag in January. Another hike of Rs 10 a bag was implemented in the first week of February, taking the average price to Rs 240-245 a bag. The price hike implemented by companies could only partially offset the increasing cost of operations.
Raw material costs up
“The costs push on the fuel input, which is petcoke in our case, alone was about Rs 15 a bag of cement. Petcoke prices have gone up by about 50 per cent over the last year,” said Mr Chouksey. Cost of other raw material such as slag, flyash and gypsum have also gone up.
“Though cement prices have been hiked across all regions, we believe that the sustainability of cement prices remains uncertain in the medium-term. The cement demand growth of just 5 per cent in FY ‘11 (YTD) has now emerged as bigger concern than the over capacity in the system,” said Mr Ajit Motwani, Research Analyst, Emkay Global Financial Services.
If the uptrend in cement demand continues, the industry may log growth of close to 6.5 per cent this fiscal.