Aug 19, 2002|
Cement: Have prices bottomed out?
Cement industry today is facing a peculiar situation with a healthy demand but poor prices. The predominant question in investors mind today is whether cement prices are going to fall further.
We look at the cement price determinants and their likely impact on prices in the short and long-term.
In the short term, i.e. in the next two quarters, the glut is likely to continue and hence cement prices will suffer. However, in the long-term prices are likely to improve, as there are very few capacity additions expected going forward. The only major capacity that is expected to come up is the 2.5 m tonne Greenfield plant of Sanghi Cement. Lack of capacity additions is likely to stabilise the demand supply situation and boost prices.
Cement: YoY change in realisations
* June year ending
The other major determinant of cement prices is demand. Demand for cement has been strong in the current year largely due to good housing demand as well as large scale infrastructure spending. Cement demand is likely to remain buoyant on account of consistently falling housing loan rates, which is likely to encourage higher spending on housing despite poor monsoons. Huge funding commitment towards the infrastructure projects coupled with a large number of projects already underway is likely to ensure that demand from this segment is buoyant.
The other major determinant is formation of the cement cartel. In FY02, the cement cartel that was formed in the latter half of the fiscal totally collapsed in the last quarter. The major reason for this was the fact that large capacities came on line in the second half of the fiscal. Prices came under further pressure as major cement producers decided to increase market share due to a better demand environment. Higher volumes came at the cost of realisations.
In the short term, an understanding between players seems unlikely as the focus still seems to be on increasing market share. But in the long-term unremunerative prices is likely to force an understanding between cement majors. Having said that, the stability of a cartel will depend to a large extent on the consolidation in the industry. In the past cartels have broken due to undercutting by smaller players. Falling realisation could fuel further consolidation, as profitability becomes the function of size and reach in the market.
Poor overall market conditions and falling realisations have pushed valuations of cement companies to low levels. Prices seem to have bottomed out and this may just be the right time to invest in stocks with sound fundamentals and a definite focus towards the industry.
More Views on News
Aug 11, 2017
UltraTech Cement completed the acquisition of cement plants of Jaiprakash Associates Limited (JAL) and Jaypee Cement Corporation Limited (JCCL) during the quarter ended June 2017.
Aug 11, 2017
While topline witnessed growth on the back of higher cement sale volumes, a 50.5% YoY fall in other income weighed on Ambuja's bottomline during the quarter ending June 2017.
Jul 20, 2017
Expanded capacity helped ACC strengthen its market presence in eastern region during the quarter ended June 2017.
May 18, 2017
Cement demand was weak because of subdued housing demand, volatile cement prices, and rising fuel costs.
May 8, 2017
Stock price jumps up on Ambuja-ACC merger talks...
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 4, 2017
The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407