Chase for volumes keeps cement prices subdued in south India
1 min read . Updated: 14 Mar 2023, 09:01 PM IST
PremiumWhile demand growth in the south has been decent, intense competition has weighed on prices in recent months. The market also faces a situation of oversupply.
Cement prices across India are yet to see a sustained improvement, but the southern part of the country has been a particular disappointment. Recent dealers channel check by Nirmal Bang Institutional Equities showed this month (until 9 March), key cities in the south saw prices dip by ₹5-10 per bag compared to the previous month. One cement bag weighs 50 kilograms. In comparison, while prices were stable in north, west and the northeast, they saw a marginal uptick in east and central India, showed the channel check.
While demand growth in the south has been decent, intense competition has weighed on prices in recent months. The market also faces a situation of oversupply.
“The weakness in prices in south India can be attributed to volume push by Andhra Pradesh-based cement manufacturers," said Jyoti Gupta, research analyst at Nirmal Bang. The markets of Tamil Nadu and Kerala (Cochin) are under stress as companies are willing to sacrifice prices for volume growth, she added.
Ahead of the general elections next year, increased government spending on infrastructure and related projects is expected to keep near-term cement demand firm across the country. So, some companies have increased their focus on non-trade sales to tap this potential demand. A non-trade sale is when goods are sold by the manufacturer directly to the consumer. These are bulk sales to large buyers such as the government or big infrastructure/real estate companies. Note that average cement prices in the non-trade segment are usually lower than the trade segment where cement is sold by companies to dealers, who in turn sell the product to consumers.
“The Ramco Cements Ltd recently added clinker capacity in Andhra Pradesh and the company is pushing non-trade sales, which was not the case earlier. So, that could have added to the supply-side pressure," said Mangesh Bhadang, senior vice-president, Centrum Broking Ltd.
This is likely to have a bearing on realizations of companies having exposure to the region.
“For South-focused companies under our coverage, such as Dalmia Bharat Ltd, Ramco Cements and Sagar Cements Ltd, on an average, we could see a sequential dip of around ₹200/tonne in realizations in Q4FY23," added Bhadang.
To be sure, cement prices across most regions are expected to see an uptick in April as the June quarter is a seasonally strong quarter for the cement sector. That said, if price hikes are marginal, it would hardly move the needle on the sector’s realizations outlook.