Improved demand props cement prices in the North: ICRA

PUNE: 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 April-July 2016 from a low of Rs. 225-240/bag in January 2016. During April – July 2016, the cement prices in the North were higher by around Rs. 60-65/bag, compared to April – July 2015. Thus, ICRA expects most North Indian cement manufacturers to report better profit numbers for H1 FY2017 vis-a-vis H1 FY2016.

Sabyasachi Majumdar, senior vice president, ICRA Ratings said, “While the production growth during April-May 2016 was lower at 3.4% when compared to the 9%-13.5% growth reported during Q4 FY2016, the demand has picked up in June 2016 and the production increased by 10.4% when compared to June 2015. During June 2016, demand improved in the North, driven by a demand pick up in Uttar Pradesh where there is increased Government spending on infrastructure and irrigation projects. The decline in the demand growth during April-May 2016 has been primarily due to the continued weak rural demand (especially in Maharashtra, which is facing a drought) and slowdown in the pace of infrastructure execution, due to the unavailability of water.”

During Q1 FY2017, cement production stood at 75.64 million MT, a moderate growth of 5.7% over Q1 FY2016. This is higher 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,” Majumdar reiterated.

In other markets, Hyderabad, while the cement prices declined during January-April 2016, there has been a rebound in May-July 2016. On an average, Hyderabad reported around Rs. 290/bag in April-July 2016, lower by Rs. 45/bag when compared to April-July 2015. 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 western markets, the cement prices continued to remain subdued during April-July 2016 in the range of Rs. 260-270/bag. In the eastern markets, on an average, cement price during April-July 2016, were pegged at around Rs. 320/bag, lower by Rs. 35-40/bag, compared to April-July 2015.