With supply overtaking demand, cement prices declined to ₹320 for a 50-kg bag in November amidst weak offtake. This is ₹5 lower than the average price in September.

Expectation of a pick-up in demand post-monsoon has not materialised even in the southern States, particularly Kerala and Karnataka that bore the brunt of heavy monsoon rains.

Cement companies expected that demand would go up as people will start re-building their houses which were washed away in heavy rains.

In fact, cement prices in the South were down by ₹12 a bag month-on-month in November to ₹328, while in west and central regions they fell by ₹8 and ₹2 a bag to ₹302 and ₹329, respectively.

Govt spending

Though the DIPP (Department of Industrial Policy and Promotion) data showed an increase in volumes by 12 per cent year-on-year in September and October it was on a lower base. The positive base effect has vanished in November and growth has tapered off. The demand in last one year was mostly driven by government spending on infrastructure projects.

“A structural improvement in cement prices will require a meaningful increase in utilisations. The large capacity addition will keep plant utilisation rates below 70 per cent over the next two years,” said Abhishek Poddar, Research Analyst, Kotak Institutional Equities Researh.

Cost comes down

Imported pet-coke prices have fallen by 17 per cent to $98 a tonne, providing marginal relief to cement companies, even though a weaker rupee nullified part of the benefits.

In line with the international trend, domestic pet coke prices fell by one per cent to ₹9,350 a tonne. However, domestic pet coke prices, which are now quoted at a premium, are also expected to fall from next quarter and will benefit cement companies from January as they usually carry an inventory of 45-60 days. Cement companies source about 60 per cent of pet-coke requirement from the domestic market.

The major benefit in logistics cost due to lower diesel cost and increase in axle load was done away by levy of busy season surcharge by the Railways.

“We maintain a cautious outlook on the cement sector on expensive valuations and on expectation of moderate improvement in earnings over the next two years,” said Poddar.

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