The slowdown in infrastructure spending and two consecutive price hikes seem to have hampered cement demand recovery in November after a marginal recovery registered in October.
Dispatches of leading cement makers, such as ACC, UltraTech Cement and JP Associate fell seven per cent, three per cent and four per cent during November, compared with the preceding month. The lone exception was Ambuja Cement, which managed a three per cent growth, largely due to institutional sales and pick-up in demand in select regions where the company operates, said sources . However, in general, sales for November, year-on-year, were up more due to a lower base last year.
“The rising operational cost had forced many cement companies to hike prices twice in November which had resulted in demand tapering off after the first week of November. Though there is a pick-up in demand from real estate and bulk buyers, infrastructure activities still remain in doldrums,” said an analyst.
The recent rise in lending rates by banks may exert pressure on real estate, but the special offers put out by banks have attracted a few borrowers. However, uncertainty in the real estate sector will continue for some time, he added.
On an average, cement prices in November were up Rs 10/50 kg bag compared with October. The eastern region witnessed the sharpest price hike of Rs 25 a bag to Rs 280 followed by the north where prices rose Rs 15 a bag to Rs 285. The western region saw a price hike of Rs 12 a bag to Rs 255. Prices in the southern States remained firm at Rs 290, despite a fall in off-take due to wet weather conditions.
COST PRESSURE
A good quantum of coal assigned for e-auction by Coal India was diverted to the power sector according to the Central Government direction to assign priority to power production. This had pushed up coal prices in the e-auction, said a cement company official. “Coal imports had turned costlier after the rupee depreciation against dollar. Supply through coal linkages were also affected,” he added.
Freight charges for the cement companies shot up substantially after the three per cent rise in freight charges by the Railways. Further, the development fee levied on freight too has been raised from 2 to 5 per cent.
The hike will have a cascading effect on the profitability of cement companies which are already fighting a demand slowdown, said an industry source.
Stock performance
Of late, cement company stocks have seen some renewed buying interest. While ACC and Shree Cement lost 0.64 per cent and 1.28 per cent to close at Rs 1,206 and Rs 2,105 respectively on Monday, Ambuja Cement gained two per cent to Rs 162, UltraTech Cement one per cent to Rs 1,186 and Madras Cement 0.09 per cent to Rs 116.