September 22: Cement-makers across North, Central and East India have cut back on production in Q2 (July - September), by 10 – 15 per cent, in view of persistent poor demand and stalled projects or delayed award of contracts, following extended monsoons. Price realisations continue to be weak and trade discounts are being offered to overcome slump, say sources.
Market participants say, average clinker utilisation across plants are in the 70 - 75 per cent-odd range for the quarter, against “close to 80 per cent for April - June quarter”.
South India remains relatively better off for the time being.
“Parts of West India faced floods, now its East India where impact of monsoons are seen on infra projects. This apart in North India there has been extended impact of monsoons. This has delayed project work, both new and ongoing,” a market participant told businessline.
According to Ajay Kumar Saraogi, Deputy MD and CFO, JK Cement, demand is generally lower in Q2, but in general picks up mid-September onwards. However, this has not been the case this year.
“There is a 10 – 15 per cent volume (production) drop across industry so far in Q2, particularly because of slowdown in some key markets covering North and Central India. In the West, it is extremely subdued too,” he said.
Slow Project Contracts
According to cement dealer, in North India, no new or major project award was granted in Q2. Even the Railway projects announced in the Cabinet are yet to be formalised with tenders still under consideration. “Perhaps they will take another six months or so for these Railway projects to be on track,” said a market participant.
In case of road projects, there was no new contract being awarded in April and May due to model code of conduct, in June summer heat slowed down work, and July onwards monsoons impacted projects, they said.
Some slowdown in key housing markets in Uttar Pradesh was witnessed too. For instance, across five major property markets there – Noida, Greater Noida, Ghaziabad, Lucknow and Agra - there are 378 stalled housing projects, comprising nearly 1.46 lakh units, according to PropEquity.
Housing demand slowdown?
In fact, for the real estate analytics firm said, new housing launch and sales in the July - September period of 2024 in top 9 cities showed a decline of 11 per cent and 18 per cent, respectively.
Launches fell to 93,693 units from 1,05,655 units in the same period last year while sales fell to 1,04,393 units in July – September 2024, from 1,26,848 units a year-back. The nine markets cover NCR, Mumbai, Navi Mumbai, Thane, Pune, Bengaluru, Hyderabad, Chennai and Kolkata.
Realisations
Saraogi of JK Cement says that the company is hopeful of demand picking up October onwards, specially in the pre-festive and post-festive season periods. There is thrust on rural infra and government capex flows are expected to start H2 onwards.
“Typically in election years, we see demand peak six to eight months before polls, which happened in H2FY23. Then post election it takes a quarter or so to pick up. But yes, this time the dip is sharper as monsoons continue to be extended; and unlike other commodities we cannot stock cement. So industry took production cuts as a measure,” he explained.
Price realisation (for the industry) in Q1 FY25, April – June was at least 3 per cent lower than Q4 FY24 (Jan – Mar) exit prices. In July – September period price is down further 6 per cent to Q4FY24 and 3 per cent to Q1 FY25, respectively.
Cement-makers did announce a ₹3 – 10 per bag price hike in early September; which till middle of the month had failed to find acceptance in the market, said executives at another cement-making firm.
Research firm Nuvama in a recent report said, cement companies in India might be forced to reverse the price hikes implemented in September “due to weakened demand and pressure from competitive market conditions”. However, the firm did add that the price rollback might not be uniform across the country.
In regions where infrastructure development is picking up pace, cement prices may hold. Urban areas with ongoing real estate projects and government infrastructure initiatives could see a sustained demand.
Any significant recovery in rural demand, which is currently subdued, could also influence price movements, the report mentioned.