Cement Demand Moderated
Cement Demand Moderated

Cement Demand Moderated

Seasonal overhang, transient impact of GST roll-out and RERA implementation in several States took a toll on cement demand in July 2017. Further, most dealers do not expect any meaningful demand recovery in the near-term, as the adverse effects of GST roll-out may still take one or two months to ease.

Notably, beginning of festivals and Pitru Paksha in coming weeks will derail the possibility of demand recovery in 1HFY18. All-India average cement price corrected by 1 per cent month-on-month [MoM] (Rs 3-5 per bag), as the soaring production cost due to rise in fuel prices compelled the companies to hold prices even during seasonal slowdown. Northern, Western and Central regions witnessed price correction of 1.7 per cent, 2.2 per cent and 1.3 per cent MoM, respectively, while prices in Southern and Eastern regions broadly remained flat MoM. Though the prices in trade segment didn't see any sharp correction, the project segment saw a meaningful price correction, as the average price gap between project and non-project segments surged to Rs 30-40 per bag from Rs 15-20 per bag in several pockets.

Dealers expect a sharp recovery in project segment prices in coming weeks. Notably, certain pockets of Western region witnessed price improvement from August 01, 2017. While disruption in demand can be attributed to the transient impact of GST, RERA and heavy rainfall, we expect demand momentum to pick-up meaningfully in 2HFY18 mainly owing to: (a) government's commitment for maximum deliverance in its last two years of regime; (b) likely pick-up in housing activities led by farm loan waivers; and (c) likely pick-up in rural demand post favourable monsoon.

Northern region Northern region witnessed a price correction for the third consecutive month mainly led by correction in Delhi and Chandigarh markets. Average price has corrected by Rs 3-5 per bag MoM approximately Rs 285-290 per bag. However, sales volumes remained broadly flat on monthly comparison. Prices in Delhi/NCR corrected by approximately Rs 5-10 per bag MoM and the average price currently rules at Rs 275-280 per bag. As per the dealers, sales volume remained flat MoM despite being moderately higher on YoY (year-on-year) comparison especially in trade segment. Further, prices are expected to remain flat with downward bias in the near-term. Prices in Jaipur (Rajasthan) remained flat MoM at approximately at Rs 265-270 per bag in July 2017. As per the dealers, volume remained dismal due to lack of projects and GST's initial impact. Further, they expect prices to remain at current level in coming weeks.

Prices in Amritsar (Punjab) too remained broadly flat on a MoM comparison at approximately Rs 335-340 per bag despite moderation in MoM sales volume. Despite improved availability, sand prices are exorbitantly high owing to restriction of mining through machines. Though the flows of cement from Pakistan slowed down the price differential continued to remain high (up to Rs 40-50 per bag). Following a marginal correction of Rs 3-5 per bag MoM, the average price in Chandigarh (Punjab) is ruling at approximately Rs 325-330 per bag currently. Dealers cited scanty rain in the region supported sales volume. UltraTech Cement performed exceedingly well in Chandigarh depo during the month. As per the dealers, the prices are unlikely to witness any significant up-tick in next 1-2 months.

Southern region
Having seen price erosion in May-June 2017, prices in Southern region ended on a flat note MoM in July, with which the average price in the region stands at Rs 340-345 per bag. However, barring AP per Telangana, the demand scenario in Southern region continued to remain bleak. Average price in Telangana per AP remained flat despite demand being impacted due to GST rollout. Dealers cite that there is confusion between companies and dealers pertaining to reversal of taxes and other expenses. Average price of premium brands currently hovers at approximately Rs 310-315 per bag.

In Chennai, prices improved by approximately Rs 10-15 per bag MoM to Rs 380-385 per bag despite insipid demand environment. While political impasse and drought in Tamil Nadu led to dismal construction activities and low demand, sand crisis aggravated demand concerns. However, production discipline led to price up-tick in Tamil Nadu. Prices in Bengaluru corrected by Rs 8-10 per bag MoM to approximately Rs 360-365 per bag led by demand contraction post GST roll-out and RERA implementation. Further, demand in Ernakulam (Kerala) remained subdued and the average price continued to remain flat MoM at approximately Rs 375-380 per bag.

Western region
Average price in Western region continued to see moderation for the second consecutive month as prices softened by Rs 5-7 per bag MoM in July 2017 led by price correction in several pockets of Maharashtra like Pune and south Maharashtra. Average price is currently ruling at Rs 310-315 per bag. However, average price on YoY comparison appears to be robust (10 per cent YoY).

Prices in Mumbai-including Thane and Navi Mumbai-remained flat MoM at Rs 335-340 per bag. However, sales volumes declined by 10-15 per cent MoM owing to heavy downpour and GST roll-out. Further, there has been a sharp correction in project segment prices owing to sharp slowdown in real estate activities post RERA implementation. Dealers expect trade segment prices may fall in August 2017 due to likely further slowdown owing to festivals. Prices in South Maharashtra fell by Rs10-15 per bag MoM in July 17 to approximately Rs 300- 305 per bag due to sharp MoM demand contraction. However, on YoY comparison, sales volumes remained higher. Despite persisting sand issues, low construction activities maintained the availability. Dealers expect demand momentum to pick-up post festivals in Maharashtra. Notably, the prices were increased by Rs 10 per bag to Rs 310-315 per bag from August 1, 2017.

Prices in Pune witnessed a steep contraction for the second consecutive month and cracked by approximately Rs 30-35 per bag MoM to approximately Rs 275-280 per bag due to excess rains and low construction activities. However, prices were increased by Rs 25-30 per bag from August 1, 2017. Demand scenario is expected to improve after monsoon.

Prices in Ahmedabad (Gujarat) improved by Rs 10-15 per bag MoM to Rs 310-315 per bag despite dismal demand due to heavy downpour. Though the dealers expect the prices to remain range-bound, demand is expected to improve post monsoon owing to pre-election spending in the State.

Eastern region
Average price in Eastern markets continued to remain flat MoM at Rs 295-300 per bag despite contraction in demand. The region has been one of the best regions in terms of demand in previous quarter. However, surplus capacity continues to remain a big concern, which fades the possibility of any sharp up-tick in price. Prices in Patna (Bihar) remained flat MoM at Rs350-355 per bag. As per the dealers, demand contracted MoM owing to GST roll-out and heavy downpour. While sand mining issues appeared to have sorted out in the beginning of July, it propped up again, which can affect demand. However, dealers are hopeful about demand revival in the State after the change in political scenario in the State.

In Kolkata, the prices remained flat MoM at approximately Rs 335-340 per bag. Dealers stated that though the demand environment was impacted on MoM basis, it should recover strongly post Durga Puja festival. Further, they expect that the prices are likely to remain range-bound in next 2-3 months.

In Raipur (Chhattisgarh), prices remained flat on MoM basis and average price currently rules at Rs 210-220 bag (trade) and Rs 190 per bag (non-trade). As per the dealers, prices are unlikely to witness any improvement hereon owing to government's intervention and instructions to the cement companies operating in the State. Prices in Bhubaneswar (Odisha) corrected marginally, as GST roll-out and heavy downpour adversely impacted the demand. However, construction activities are expected to pick-up post monsoon.

Central region
Though demand environment softened owing to seasonal overhang, dealers are hopeful about pick-up in demand momentum post monsoon on the back of Government's projects and better expectations of farm income. Average price witnessed a marginal correction of Rs 3-5 per bag MoM to Rs 295-300 per bag mainly due to price correction in western Uttar Pradesh markets.

In Bhopal (Madhya Pradesh), prices remained flat on MoM basis at approximate Rs 310-315 per bag, as demand continued to remain flat. However, dealers are of the view that production pick-up from UltraTech's newly acquired units may cast pressure on prices. However, they do not expect any sharp deterioration in prices in light of better track record of pricing discipline.

Prices in Lucknow (Uttar Pradesh) ended on a flat note MoM at approximate Rs 295-300 per bag. Sales volume was impacted marginally on MoM basis. Further, availability of sand still remains a concern. Dealers expect sand issues to be sorted out post monsoon. Average prices in Agra (western UP) dropped for the third consecutive month and average price corrected by approximately Rs 15-20 per bag on MoM basis to approximate Rs 290-295 per bag. Dealers expect the prices to improve post monsoon with likely pick-up in demand.

Key takeaways
Demand scenario in July 17 was impacted by seasonal slowdown, transient impact of GST roll-out and implementation of RERA in several States (15 States and 7 Union Territories have notified the Act till date). Further, demand scenario is not expected to improve in next one to two months owing to GST's transient impact, festivities and Pitru Paksha. All-India average cement price corrected by 1 per cent MoM (Rs 3-5 per bag), as the soaring production cost due to rise in fuel prices compelled the companies to hold prices even during seasonal slowdown. Northern, Western and Central regions witnessed price correction of 1.7 per cent, 2.2 per cent and 1.3 per cent MoM, respectively, while prices in Southern and Eastern regions remained broadly flat MoM. Prices in project segment witnessed a sharper decline, which led to increase in price gap from Rs 15-20 per bag to Rs 30-40 per bag in various geographies. However, dealers expect a steeper recovery in prices from this segment.

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