Cement prices on the rise despite weak demand

Central and North India saw cement prices increase by Rs 12 to Rs 21 in the month of July. Since January, prices in these regions have risen by Rs 60-70 per bag. 

What is perplexing is the fact that prices continue to rise despite demand lagging at just 3.9% in April to May 2016 period. 

In February, cement producers increased cement prices unexpectedly by Rs 10-15/bag of 50 kg, followed by another Rs 50-70/bag in March. 

Prices have increased despite weak demand. 

Cement volume remain subdued and increased by 3.9% yoy in April-May 2016 compared to 11.6% yoy in 4QFY16 (on a low base). This low-spirit trend was seen on a pan-India basis.

Take-off in cement is weak as payment delays to contractors which have brought government projects to a halt.  Also, sluggish rural economy after unseasonal rains, low minimum support prices and low disposable income have impacted the rural demand.  

Further stagnant real estate market which has hardly seen any new launches since March.

Considering the weak demand, yet the July quarter reflected a sudden jump led by rise in north, central and eastern regions, mainly tapped by above-average rainfall. 

The  Indian Meteorological Department (IMD) has predicted a good monsoon and it is expected that rural demand will see revival in the second half of the season. 

In north, the prices increased by Rs10-20/bag in almost all the states including Rajasthan, Punjab, Haryana, Himachal Pradesh as well as in Delhi. While in central region, the price increases were in the range of Rs18-28/bag in the states of Uttar Pradesh and Madhya Pradesh.

Higher prices will aid earnings the most for regional names in north, central and west regions and to a lesser extent for pan-India companies, says Kotak Institutional Equities.