The 270-million tonne cement industry reported a marginal year-on-year increase of product despatches in July, a trend that is expected to continue in August too, say experts.
Dealers are pointing at a severe undercut in cement prices by producers to retain volumes. However, the demand shows no signs of recovery. In July, despatches rose by 3.93% y-o-y. However, it declined by 4.13% on month-on-month (MoM) basis.
IIFL analyst J Radhakrishnan said, ?We have revised our despatch growth estimate downward for the first half of FY11 to 5% y-o-y from 8% and FY11 growth to 7% from 9%, as the demand decline in the first four months of the fiscal has been steeper. The average cement price stood at Rs 220 per 50 kg bag, down 7% on a monthly basis and 14% y-o-y.
Difficult times are expected in 3Q FY11 as supplies from new producers? increase and capacity commenced in the past 2-3 quarters are likely to increase sharply as these it stabilises.
Up to March 2010, the capacity stood at 35 million tonne and another 40 million tonne is expected for the this fiscal resulting in over supply. Dealers attribute the dip in despatches to a lull in demand from infrastructure projects, floods in North and a fall in demand from Commonwealth Games-related construction work.
Shree Cement CMD HM Bangur told FE, ?Due to active monsoon and less working hours, the consumption has been flat and weak demand is expected to continue in Q2 as well. However, all positive impact of good monsoon will be visible from Q3 onwards and I expect 9-10% demand growth in Q3 and Q4 of FY11.?
According to the IIFL report, prices are anticipated to decline in the northern and eastern markets, whereas in the southern and western markets, prices are expected to remain volatile. Capacity utilisation is expected to recover sequentially in 3Q FY11; however, the sharp decline on y-o-y basis is likely to continue.
ACC, during its second quarter results, had hinted that capacity addition by the cement industry, especially in the southern region coupled with the onset of monsoon has caused some stress in the market especially prices. ?The cement price decline continues in the current month of August as well, due to poor demand and sharply increasing supplies. Prices are expected to decline further,? said a Mumbai based cement dealer requesting anonymity.
