Cement companies are expected to register better profits in the September quarter on the back of improved realisation, compared to last year. However, sales volume may be muted for large cement companies. Fall in demand from infrastructure and housing projects has resulted in tepid cement demand.
In general, the September quarter is always weak on the demand front for the cement industry. This is due to the slowdown in construction activity due to the South-West monsoon which covers most parts of the country. The monsoon, which was weak till July-end, intensified in August and September, said V. Srinivas, Research Analyst, Angel Research.
Cement prices saw a marginal decline of Rs 5 per 50 kg bag due to a weak monsoon. Andhra Pradesh witnessed a sharp fall in prices, with both JP Associates and JSW Steel commencing production from the State.
Imported coal prices
Imported coal prices declined 28 per cent to $86 a tonne in the September quarter. However, the benefit of lower coal prices was partially negated with a rupee depreciation of 21 per cent against the dollar.
The price of diesel, too, increased by Rs 5 a litre in September, adding to the production cost for cement. Transporters hiked freight rates to factor the hike in diesel prices.
Vinita Singhania, Managing Director, J K Lakshmi Cement, said though raw material prices have come down year-on-year, it is still higher by about 23-25 per centcompared to the June quarter.
“The cement industry is not completely out of woods. The demand is still sluggish and expected to pick up by the end of this month,” she added.
Future uncertain
Cement companies may see their pricing power diluted marginally, with fresh capacities added in the last few months flowing into the market.
The industry plans to add new capacity of about 71 million tonnes in the next two financial years. At present, it has an installed capacity of over 315 million tonnes to cater to the demand of about 230 million tonnes.
Production cost is expected to move up with the Government’s plan to de-control diesel prices. It will become difficult to pass on the cost to the consumer when demand is not keeping pace with production, said a cement company official.
Cartelisation
CCI recently imposed a penalty of Rs 6,200 crore on 11 cement companies for indulging in price cartelisation. It also held the Cement Manufacturers’ Association guilty for facilitating companies in their cartel.
Almost all companies have challenged the ruling with the Appellate Tribunal. The outcome of the case will also have its impact on companies’ profitability, as none of the companies have made provisions for the penalty.