The current depletion in the demand of cement as well as an incessant brawl for market share, is affecting the prices adversely. Mentioned below is an extract of a recent IIFL Institutional Equities report which highlights the unsatisfactory state of the cement market across the country.
- Cement prices declined upto Rs20 per 50kg bag (1-7%) in all regions except the west as demand continues to be weak and producers are fighting for volumes, according to the dealers.
- Our channel checks indicate that all major producers clocked strong double-digit dispatch growth for November owing to focus on volumes. According to the dealers, demand has been weak across segments. Thus, higher despatches by companies resulted in a sharp increase in inventory at the dealer and consumer end, putting pressure on prices.
- All-India average price is down 3% MoM and 1% YoY. The average price is ~5% below our expectation for November.
- We expect cement prices to be under pressure (except for south) for December since the MNC players are likely to focus on volumes to meet year-end targets. In the southern region, producers indicated price increase of Rs30-60 per bag with some improvement in discipline (prices have fallen by similar amount in the last two months), the dealers state.
- Although we continue to be positive on the sector from a medium-to-long-term perspective, there is downward risk to our FY15 earnings estimate to the tune of 5-10% due to lower-than-expected prices for the past two months.
North - Weak demand and fight for market share depress prices: Cement prices fell by Rs15-20 per bag across the northern region due to weak demand and increasing supplies from new capacities that commenced in the past 3-4 months. Three major plants (brownfield expansion of JK Cement's 2.5mtpa and Shree Cement's 3mtpa and greenfield expansion of Sidhi Vinayak Cement's 2mtpa) have started supplying the market whereas demand is weak in the northern region (sand issues in Punjab and absence of a government in New Delhi). Dealers expect further decline in prices in December due to likely year-end discounts by MNCs. The current price range is Rs225-255 per bag in New Delhi, Rs225-265 per bag in Jaipur, and Rs230-280 per bag in Ludhiana.
South - price increase announced by producers: Producers announced a price increase of Rs30-60 per bag in the southern region (except Kerala) in the current week, the dealers state. Producers have stopped supplying cement for 3-5 days in Andhra Pradesh, Telangana and Karnataka, to enforce the price increases, according to the dealers. Demand continues to be weak across the region and across segments. The current price range is Rs275-315 per bag in Chennai, Rs290-350 per bag in Bengaluru (following Rs30-40 per bag increase from 1 Dec), Rs245-275 per bag in Hyderabad (currently under five-day despatch holiday which is likely to end on 5 Dec and prices may increase by Rs25-30 per bag, according to the dealers) and Rs320-365 per bag in Kochi (currently under despatch holiday due to discount dispute with dealers).
West - Supply shortage results in price increases in Gujarat: Cement prices were largely stable in Maharashtra for November with a small decline in Pune and a small increase in Mumbai. In Gujarat, prices increased to the tune of Rs20 per bag due to low supplies from Gujarat Sidhee plant (as limestone mining has been banned due to an environmental issue), after falling by Rs8 per bag early in the month; dealers indicated stable demand across the region. The current price range is Rs290-330 per bag in Mumbai, Rs255-290 per bag in Ahmedabad, and Rs260-300 per bag in Pune.
East & Central - prices decline across the region as demand turns weak: Prices declined by Rs10-20 per bag in the eastern region and Rs5-10 per bag in the central region due to continued weak demand. Dealers expect further price declines for a month due to discounts by MNCs to meet year-end targets. The current price range is Rs300-340 per bag in Kolkata, Rs260-320 per bag in Bhubaneswar, Rs300-340 per bag in Patna, Rs250-280 per bag in Lucknow, Rs240-290 per bag in Bhopal, and Rs215-270 per bag in Indore.