Cement prices in southern India rise 18% over strong production discipline

Pricing in the East has been weak, declining by Rs 25 a bag since May2020.
Cement prices in southern India grew by around 18% year on year, which is nearly double the prices in other regions of the country. The cement industry in the southern part of the country has exhibited strong production discipline in the face of weak volumes.

According to Motilal Oswal, prices in South India have been strong and are up 18 per cent YoY (flat QoQ), while prices in North, West and Central India are up 7 per cent, 6 per cent and 5 per cent YoY, respectively, and 3 per cent, 1 per cent and 2 per cent QoQ, respectively. In Q3FY21, the average price is up 0.8 per cent QoQ so far across India versus a decline of 1.1 per cent and 0.7 per cent QoQ seen in the past 5-10 years. The same is up by around 7 per cent YoY to Rs 360 a bag.

Led by hikes of around Rs 70-90 a bag (around 20%) in April-May 2020, prices in the south are still up Rs 60/bag, or 18% YoY to Rs 393 a bag in Q3FY21. On a QoQ basis, prices are flattish as hikes in November 2020 have neutralized the declines seen in the September-October period this year.

The report added, volumes are growing over 10 per cent YoY in North, East and Central India, while demand has remained weak in the South and Maharashtra.

Prices in Maharashtra are up by around 10 per cent at Rs 354 a bag, supported by higher prices in the South, which is a key supplier to the state. The same for Gujarat remained steady QoQ (up 3% YoY) at Rs 350 a bag. As a result, prices in the West are currently up 1% QoQ (6% YoY) at Rs 352 a bag.

Led by strong demand, prices in the North have risen by Rs 13 to Rs 389 a bag, up by around 7 per cent. Prices in Central India have also risen by around 5 per cent to Rs 356 a bag. Demand is North and Central India has gained momentum as monsoons subside. While some softness in demand has been observed in the last few weeks due to the festive season (Diwali and Chhath), it is likely to now pick up as migrant labour returns to construction sites.

Pricing in the East has been weak, declining by Rs 25 a bag since May2020. Cement prices have declined ~2% QoQ due to the festive season. However, prices are marginally higher YoY at Rs 324 a bag. Due to the supply overhang, East has also seen the weakest pricing among all other regions in the past three years, with current prices lower than those 3 years back.  The rest of the country, meanwhile, has seen an over 10% increase in prices in this period.

Demand in the East has been the strongest of all regions supported by government spending as well as increased labour availability as migrant workers returned to their hometowns due to the Covid-19 pandemic.

“The cement industry has started recovering slowly from May 2020, given the pent-up demand and the improved rural demand. 

During the first quarter of FY21, the Andhra Pradesh and Telangana governments restarted their infrastructure projects and housing for poor schemes. With further relaxation of lockdown measures, there are expectations of increased public spending on rural infrastructure, irrigation, road building and other projects. This, along with a pick-up in individual home building and construction, is expected to improve cement demand,” N Srinivasan, vice-chairman and managing director, India Cements said.

Cement prices, which started improving from the month of April this year, sustained during the second quarter under review with only marginal aberrations in some of the southern states. These improved prices along with the cash and carry policy of the company which helped in improving the profitability and the liquidity in these troubled times, said Srinivasan.

With the improved selling prices, the net plant realisation (NPR) was up by 11% as compared with the previous year.

The company's capacity utilisation in the first quarter was at 35 per cent and it improved to 53 per cent. For the first half of the fiscal it was 43 per cent.

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