Cement prices moderated in August, according to a report by brokerage house Emkay. “Our channel checks indicate that cement prices declined further in August 2019, with average pan-India prices declining 2.5% month-on-month (m-o-m)," the report said.
“Average cement price fell about 3% (m-o-m) in the North, Central and South regions, while prices dropped by about 1.5% (m-o-m) in the East and West regions. Cement companies announced price hikes of Rs50/bag in Andhra Pradesh and Telangana in August-end, effective September 9, 2019." according to the report.
Dealers, however, remain skeptical about the sustainability of the price hikes. In the north, over the past two months, the price decline in the non-trade segment (Rs25-30/bag) was higher than that in the trade segment (Rs10-15/bag), leading to a wider gap between trade and non-trade segment prices, the report added.
Earlier this month, credit ratings agency ICRA estimated that the growth in domestic cement demand was expected to decline to around 7% in FY20. This compares to a 13% demand growth in FY19.
Relative weakness in cement offtake in Q1FY20 is indicative of the slowdown. Demand has been hit due to a slowdown in government projects, ahead of elections and shortage of labour. “The same is expected to pick up from Q3 FY2020, post the monsoon season, and growth of 7% is expected during the current financial year. In Q1 FY2020, higher cement prices and lower costs – power and fuel and freight expenses – are likely to result in margin recovery," the note added.
Emkay said that with sales volumes under pressure, fuel prices would moderate further.
“Our channel checks point to a slowdown in industry demand in Aug/Sep’19 on above-average monsoons; delay in demand recovery from government projects; and flood-like situation in many parts of the country. Based on our interactions, we conclude that industry volumes will decline 5% year-n-year in August 2019, and we do not expect any improvement in September 2019. Industry sales volumes should be down in the range of 4-5% year-on-year in Q2FY20."