Cement - Prices rise to cover losses from falling volumes... - ICICIdirect

Cement prices recover in June; demand remains tepid

All-India cement prices saw an uptrend led by price hikes across all regions in the country. The southern region saw an average price hike of Rs. 30/bag, the highest among all regions, which took the all-India average June 2013 prices to Rs. 308/bag as compared to Rs. 294/bag in May 2013. In the east and west region, prices increased by Rs. 15-20/bag, which took average prices in the east and west region to Rs. 333/bag and Rs. 306/bag, respectively, for June 2013. In the northern and central region, prices increased in the range of Rs. 5-10/bag, taking the northern & central price average to Rs. 296/bag and Rs. 293/bag, respectively. Demand fell drastically across regions mainly due to early arrival of monsoons and a general slowdown in the infrastructure sector. With this upward pricing trend, all-India average cement prices stood at Rs. 308/bag, a rise of ~Rs. 14/bag MoM. On a YoY basis, prices are up by Rs. 15/bag. According to dealers, cement prices are expected to remain firm in the coming days, which is important to cover the costs as volumes are not supporting and falling continuously due to monsoon arrival in the country.

Cement dispatches decline on low demand

Mangalam and JK Lakshmi reported cement dispatches numbers for May 2013. Cement volumes for both these companies declined 14.6% and 12.5% YoY respectively. Given the weak macro environment, slowdown in housing demand and low infra spending by government, we expect prices to see some correction going ahead. Hence, we continue to remain cautious on the sector unless we see a clear trend of healthy recovery in volumes.

Industry outlook

All-India cement dispatch growth for FY13 remained tepid due to sluggish consumption from the housing and infrastructure segments on account of key issues like rising cost of capital, land acquisition & clearances and unavailability of key raw materials like coal for the manufacturing industry. Also, government led demand push growth remained lower in FY13. Although we expect H1FY14 to remain tepid in terms of demand, we continue to remain neutral with a positive bias on the industry as we believe the demand supply scenario will improve on the back of a pick-up in infra spending by the government (with higher allocation towards expenditure vs. last year) and revival in private sector spending on likely softening of the interest rate cycle.

Source : Equity Bulls

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