Cement price fall will hit first-quarter margins

The cement industry is facing a continuous downward spiral in prices and adding to its woes is the decline in growth figures for the last three months.

Analysts who had estimated good first-quarter results due to increase in cement prices post budget are now concerned about the lacklustre performance of the sector.

Rupesh Sankhe, research analyst with Angel Broking, said, “The plants which have been commissioned during October-January have all stabilised and the additional supply during the last quarter was around 12 million tonnes. We expect prices to fall by another 5-7%, which is around Rs 15 per 50 kg bag, after the monsoons when construction activity would begin.”

As of today, in the southern region, prices in Tamil Nadu fell by Rs 15 per 50 kg bag over the last month, Andhra Pradesh saw the biggest dip at Rs 20 whereas in Bangalore prices declined by Rs 15.

The eastern belt which has been holding the forte for prices saw a dip of Rs 6-8, thus commanding a price of Rs 295-298 for retail buyers from its peak of Rs 303 last month.

In the western region, Gujarat saw prices fall by Rs 15-20 whereas in Mumbai they fell Rs 5-7 to around Rs 263 and are expected to go down even more.

Analysts said even Delhi will start seeing fall in demand as Commonwealth Games preparations have reached the final stage.

HM Bangur, managing director, Shree Cement, one of the major players in north India, said, “The construction demand is good.

The little dip that we are seeing is because of the oversupply situation. After monsoon prices may not go up but demand should be good.”

An analyst with a domestic brokerage said, “The demand would not increase thus putting pressure on prices. Also, adding to it are the logistical bottlenecks. In fact, the supply from South to Maharashtra of around 3 million tonnes has also reduced considerably due to the same.”

Adesh Gupta, chief financial officer, Grasim Industries, said, “As the input costs increase the company expects some constraints in the margin. We see market not going up and forsee a surplus of 15-20 million tonnes during the peak of it.”

Analysts said, “The full impact of last quarter should have been visible in this quarter but now that prices have again bottomed out from where they rose or much more in some areas the realisations would be flat.”

While the first-quarter results would be better than coming next two quarters, they do not foresee a healthy FY11.