Wobbly demand for cement in India

Cement demand has declined for the second month in a row. Despatches showed a drop of 0.9% year on year for the month of May, 2011. And prices too have fallen. According to a report released by Alchemy Share and Stock Brokers, cement prices have corrected in all regions except in South India and Punjab. Prices are expected to correct further with weak demand outlook seen over the coming months, says the report.

The increased availability of labour has led to a rise in price in Punjab and adjoining Rajasthan, which moved up by Rs5-10 per bag. While labour unavailability and hot climate have led to prices falling in Delhi and Jaipur. Non-trade prices in particular were depressed.

Prices in central India have declined by Rs15-20 per bag, driven largely by weakening demand. Non-availability of labour and the heat wave also led to lower demand.

In the eastern regions prices have fallen by as much as Rs20-30 per bag. Increased supply in the region has led to the decline.
Prices in non-trade segment have resulted in prices falling by as high as Rs35-50 per bag.

Prices in Maharashtra remain at high levels due to supply issues. Early monsoon and slow clearances of projects have led to lower demand. Gujarat too has been facing an over-supply scenario.
Production discipline led to prices being strong in Southern India.
Exceptionally low demand has been a result for the production discipline. A pick-up in demand can break the discipline, says the Alchemy report.

It is very unlikely that cement stocks will be going anywhere in a hurry given the current demand-supply and price scenario.
With the government pressing on the breaks with increased interest rates and lower spending, these stocks are best avoided.