Cement firms’ profit to look up despite weak demand in Q1

PTI Mumbai | Updated on June 27, 2019 Published on June 27, 2019

The cement companies increased the prices in March 2019 in most markets on an month-on-month basis   -  Bloomberg

Lower cost will offer respite: ICRA

Hit by a slowdown in execution of infrastructure projects, cement demand in the June quarter was weak.

Despite lower demand, profitability of cement companies is expected to improve in this quarter with higher cement prices and lower power, fuel and freight expenses.

Cement production in April was down 13 per cent on a month-on-month basis at 28.7 million tonnes. The demand is expected to pick up after the monsoon season in the December quarter and register a growth of seven per cent in this financial year.

Sabyasachi Majumdar, Senior Vice-President, ICRA, said growth in demand will taper to about 7 per cent this fiscal from 13 per cent logged last year.

Besides slow execution of infrastructure projects, availability of labour was an issue due to the general elections, he added. In the September quarter, demand will be on the lower side owing to the monsoon season.

ICRA expects the demand to pick up from the December quarter and the growth is likely to be driven by housing – primarily rural and affordable housing – and improved focus on infrastructure, mainly road, railway and irrigation projects. The rating agency expects the industry to add about 18-20 mtpa this fiscal. Interestingly, all the new supplies are not fully integrated and most capacity additions are backed by old limestone mining leases.

While the incremental demand of about 24 mtpa is greater than the incremental supply, the capacity overhang is likely to keep the utilisation at a moderate level of 71 per cent this fiscal from 69 per cent logged last fiscal.

Cement prices were up 20-25 per cent in Delhi and Hyderabad in April-May, and in Mumbai, they increased by 10 per cent. While the price increase sustained for two months, it declined in southern markets in June due to a demand slowdown along with supply pressures.

Majumdar said the fall in coal and pet coke prices by 3 per cent and 13 per cent year on year in April and May would result in lower power and fuel expenses and boost the profit of cement companies.

Published on June 27, 2019
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