Economy & Market
Prices may remain under pressure in Q2: ICRA
Despite cement prices touching a record level by end-June 2018, they could not sustain these high levels and eased by end-July. ET Index of Cement Prices has fallen about 77 points or 3.77 per cent from 2048 points at end-June to 1970.9 points at end-July 2018, though it has remained at 2011.2-point level till a few days before that. The companies could not hold their prices at a higher level witnessed in end-June 2018 even though their costs have spiked during the last few months. The expectations that the prices will go up further in July was dashed as major players in the industry were focusing more on building volumes by pushing stocks instead of focusing on higher profitability at this juncture.
On an average, cement prices have declined in most markets in April-June 2018 (Q1 FY2019) on a year-on-year (YoY) basis, at a pan India level prices have declined by around 5-6 per cent YoY. Leading rating agency ICRA said in a recent analysis that due to decline in cement prices the profitability of cement companies is likely to be negatively impacted in the first half of FY2019.
'Also, the prices are likely to remain under pressure in Q2 FY2019 due to the monsoons. Higher power and fuel (increase in coal and pet coke prices) and freight costs (increase in diesel prices) in the near term are likely to continue to put pressure on the profitability margins and debt metrics of the cement companies,' says
Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA.
The demand momentum is healthy, but the rising supplies have not resulted in a significant increase in the cement prices, which remained flat in Q1 FY2019 on a Q-o-Q basis, Majumdar adds.
According to data available with ICRA, in Q1 FY2019, cement prices declined in most markets such as Delhi, Chandigarh, Kolkata and Hyderabad. However, prices in Ahmedabad have been higher by 2.8 per cent on a YoY basis. In Delhi and Hyderabad, they have been lower by Rs. 40/bag, around 12-13 per cent, and in Chandigarh by Rs. 20/bag YoY (5.7 per cent). On the input cost front, coal and pet coke prices in Q1 FY2019 are higher by 21 per cent and 30 per cent on a YoY basis, resulting in higher power and fuel costs. Diesel prices have also been higher by 21 per cent YoY, resulting in higher freight costs.
Monthly production remained in the range of 26û28.5 million MT during the December 2017-May 2018 period, clocking the highest at 28.5 million MT in March 2018. In April 2018, production continued to remain healthy at 27.3 million MT, an increase of 16.7 per cent on a YoY basis. While production declined on a MoM basis by 5.0 per cent in May 2018, it has been higher by 5.2 per cent on a YoY basis at around 26 million MT. The production in the aforementioned period was supported by the demand in Andhra Pradesh and Telangana (driven by irrigation, low cost housing and infrastructure projects), the eastern (driven by low cost housing and infrastructure demand) and the western Indian markets (led by execution of infrastructure projects). Unavailability of sand continued to impact demand in Rajasthan.
However, during their Q1 2019 results announcement quarter, the management of UltraTech Cement was sanguine about the rise in prices in the coming quarter, citing that June exit prices were higher than the quarter's average.
BS Srinivasalu Reddy