Moderate demand growth sees muted cement prices in all regions except North: ICRA

In the northern market, a demand uptick, followed by strong pricing discipline, has resulted in the rebound of cement prices to Rs. 305-345/bag in H1 FY2017 from Rs. 225-240/bag in January 2016. During H1 FY2017, cement prices in the North were higher by around Rs. 60-65/bag, compared to H1 FY2016. Thus, ICRA expects most North Indian cement manufacturers to report better profit numbers for H1 FY2017 vis-a-vis H1 FY2016.

Mr. Sabyasachi Majumdar, Senior Vice President, ICRA Ratings, says: “While the production growth during April-August was higher at 4.4% when compared to April-August 2015 at 2.1%, it still remains moderate. This has been owing to a significant decline in the demand growth during April-May 2016 due to continued weak rural demand (especially in Maharashtra, which is facing a drought) and a slowdown in the pace of infrastructure execution, owing to unavailability of water. The demand picked up only during June 2016, with a production growth of 10.4% YoY, driven by increased demand from the northern region, primarily Uttar Pradesh due to increased Government spending on infrastructure and irrigation projects. With the onset of monsoons in most regions, demand for July and August has shown a decline of 10.5% and 4.5% respectively on an MoM basis. However, on a YoY basis the demand growth during July-August 2016 has been modest at 2.2%.”

During 5M FY2017, cement production stood at 121.26 million MT, a moderate growth of 4.4% over 5M FY2016. This is almost similar when compared to 4.6% of production growth reported in FY2016.

“Demand growth during FY2017 is likely to be driven by the pick-up in the infrastructure segment, primarily road projects and the housing segment, during the next one year; this apart, there is a likelihood of a recovery in the rural demand from H2 FY2017, given the expectations of a better monsoon. With the pace of new capacity addition slowing down we expect capacity utilisation and the supply-demand scenario to record an improvement, especially in FY2018, which should support cement prices and profitability indicators for cement manufacturers,” Mr. Majumdar reiterated.

In Hyderabad, while the cement prices declined during January-April 2016, there has been a rebound in May-September 2016 to Rs. 330/bag from Rs. 260/bag in April 2016. On an average, in the Hyderabad market, the cement prices during H1 FY2017 stood at around Rs. 300/bag, lower by Rs. 30/bag when compared to H1 FY2016. In other southern markets, the prices were relatively stable, with Chennai reporting the same at Rs. 375-395/bag and Bangalore, between Rs. 340-370/bag. In the West , cement prices continued to remain subdued during April-August 2016 in the range of Rs. 260-270/bag, and in the East, on an average, cement prices during H1 FY2017, at Rs. 325/bag, were lower by Rs. 25/bag, compared to H1 FY2016.