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Cement - Back to square one - Views on News from Equitymaster
 
 
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  • Jun 6, 2000

    Cement - Back to square one

    Financial year 2000 commenced on a positive note for the cement sector. Buoyed by sops given to the housing sector and a general pick up in economic activity, cement demand outstripped its supply as producers were caught off guard. In FY01, however, a reversal of this trend is being witnessed.

    The first two months of FY01 have affected cement producers in two ways. First, lower demand. And, second, still lower cement prices. After having witnessed a growth of over 15% in FY00 (though prices continued to remain under pressure), cement demand has slowed dramatically. Infact cement despatches declined approximately 2% during this period (there was sharp decline in April, but May has witnessed a recovery of sorts).

    There are two reasons for this. One is the drought that has affected five states, leading to a virtual collapse in demand in some parts (as construction activity has been banned due to shortage of water). The other reason is that after having recorded fantastic growth rates in the previous year (despatches were up 22.9% during April May 1999), the base effect its taking its toll.

    Nevertheless the cement sector offers some interesting investment opportunities. The reasons for this include a likely demand supply mismatch that will benefit prices and increasing consolidation that will improve pricing environment. Among others, a pick up in economic activity and investment in infrastructure is expected to further buoy demand for cement in coming years. Lastly, and most importantly, India is all set to receive its 13th successive normal monsoon. With higher incomes and enough water (!), growth in cement demand is once again expected to bounce back.

     

     

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