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Cement: Revival signs - Views on News from Equitymaster
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  • Mar 20, 2002

    Cement: Revival signs

    If cement dispatch figures for 2HFY02 are any indication, then the cement industry seems to be on a revival path. For the first half of FY02 the demand growth for cement had been 6.4%. For the year to date ending January’ 02 the demand has grown by 7.7%. This growth is encouraging compared to a de-growth of 2% in FY01.

    The second half figures for FY02 are particularly important, as cement dispatches seem to have picked up in the latter part of the fiscal year i.e. December, January and February. In December, the cement dispatches grew by 22.2% YoY. The growth rate for January was 20.2%, while it was 19.3% for February. But it is also important to point out that these large growth numbers could be due to a lower base in FY01. Cement dispatches in FY01 had been low in the latter part of the year due to depressed demand. This picture could change in March FY02, as the base for the month is higher than other preceding months.

    A look at the regional scenario tells us that for year to date ending January’ 02, the northern and the eastern regions recorded demand growth in the range of 10-12%. The southern region is estimated to have grown by around 3-4%, while the western region recorded a growth in the region of 6-7%. Growth is being mainly attributed to the post monsoon seasonal demand rise in the northern and the western regions and due to increased demand from the infrastructure sector. Other factors responsible for the growth are demand from Gujarat’s rehabilitation project and a boom in the housing sector.

    Though prices of cement across the regions have been depressed, the average prices for the year to date ending January’ 02 are 12.6% higher than the corresponding period in the previous fiscal. The average has declined due low cement prices in December and January‘ 02. The prices have remained depressed in the last 3-4 months. End of year capacity additions and pressure to meet volume targets have ensured oversupply in the market, this has led to low cement prices across the regions. Moreover, a strong builder lobby has been successful in thwarting any attempts by the cement cartel to increase prices.

    Going forward the long-term demand drivers seem to be in place in order to achieve a demand growth of 8-9% in the next 2-3 years. The National Highway Development Program, which includes projects like the Golden Quadrilateral and the North-South-East-West corridor projects, are likely to be the major source of cement demand in the next 3-4 years. Growth in the housing sector is also likely to boost cement demand. Prices are likely to remain weak in the short term due to an unfavourable demand-supply scenario. Consolidation in the industry has resulted in a better understanding between the cement producers, which is visible by the formation of alliances like that of Grasim-L&T and GACL-ACC. Further, consolidation will be beneficial to the whole industry as it will result in firmer prices and better capacity utilisation.



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