Cement makers cheer as construction activity revives
A weak monsoon and lower dispatches to wholesalers past year have resulted in a healthy growth for major cement manufacturing companies in June this year. An aggregate of cement dispatches of five major cement-manufacturing companies grew 8% year-on-year (YoY) in June 2012.
The duration between June and August is a lean period for construction activity in major parts of the country. In June last year, a good monsoon had led to a lower construction activity. However, due to delay in monsoon this year, there is an increase in construction activity, which has increased the demand for cement.
Another positive development for companies is the declining coal prices. Richards Bay Index - the benchmark for global coal prices - is down nearly 20 per cent since the beginning of the year. Although, depreciation of the rupee has offset the benefits, companies still stand to gain from lower coal prices.
It is estimated that around 500 kg of coal is required for manufacturing 1 million tonne of cement. However, due to an increase in freight costs, companies would find it difficult to improve their margins significantly. In March this year, Indian Railways had increased the freight rates for cement by about 20 per cent.
In addition, companies were able to increase cement prices due to a pickup in demand. Cement prices across the country on an average increased by Rs 5-10 per kg in June 2012. The increase was higher in western and northern region where monsoons were significantly below normal.