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Southern market pulls cement prices up by 3% in Sept despite dismal demand

September 2019 witnessed a steeper price cut in non-trade segment, as demand dry-up in the trade segment led the companies to push more volume in non-trade segment

Cement
T E Narasimhan Chennai
3 min read Last Updated : Oct 08 2019 | 10:33 AM IST
Cement prices increased by 3.2 per cent in the last week of September on a year-on-year (YoY) basis mainly due to realisation recovery in the key Southern region even though the prices remained flat on a sequential basis. While average Southern prices improved by by 1.9 per cent YoY and 4.8 per cent MoM, average prices in other regions contracted by around 1-3 per cent MoM during the period under consideration, as per reports.

All-India average cement price remained at Rs 305-310 a bag (50 kg), up by around 3.2 per cent YoY and -0.3 per cent MoM.

While all-India average cement prices in the trade segment remained broadly resilient in September 2019, demand momentum continued to remain dismal as extended monsoon and persistent slowdown in governments spending impacted the demand. However, as per dealers, September 2019 witnessed a steeper price cut in non-trade segment, as demand dry-up in the trade segment led the companies to push more volume in non-trade segment. 

Naveen Kulkarni, Head of Research, Reliance Securities said average increase was mainly due to realisation recovery in the Southern region, which was mainly led by sharp price recovery in Andhra Pradesh and Telangana despite soft demand. Average prices in other regions contracted by around 1-3 per cent on MoM basis. However, the month witnessed a steeper price contraction in non-trade segment, as demand from trade segment was impacted severely due to extended monsoon. Therefore, price gap between trade and non-trade segments widened further to Rs50-70 a bag.

"Most dealers said that sales volume was badly impacted in September 2019 and is meaningfully lower compared to September 2018, as lack of demand from government-sponsored infrastructure and housing projects has been the key factor for demand slowdown. Notably, with the likely pick-up in trade demand from October 2019, the dealers expect competitive intensity in non-trade segment to recede and the pricing momentum to remain benign hereon," Kulkarni said.

Central and Eastern markets are likely to witness faster demand recovery led by higher proportion of trade demand and higher allocation (around 42 per cent) of housing units under Pradhan Mantri Awas Yojana (PMAY), center's affordable housing project which targets to provide houses to the urban poor with a target of building 20 million affordable houses by 2022.

Overall, in the second quarter, cement price in the northern region remained the most resilient with around 11.8 per cent YoY growth and 3.2 per cent QoQ decline at Rs 305-310 a bag, followed by Central region (+4.9 per cent YoY and -2.6 per cent QoQ), and Western region (+3.2 per cent YoY and -7.5 per cent QoQ). However, average prices in East (-1.6 per cent YoY and -6.5 per cent QoQ) and South (+0.2 per cent YoY and -9.6 per cent QoQ) remained subdued. The sequential price contraction is likely to have been impacted by steep price contraction in the non-trade segment.

However, increased spending on infrastructure projects by the Centre and acceleration in infrastructure projects and development schemes by the new government in Andhra Pradesh should spur demand further in South, says industry representatives in South.

"Now that the monsoon is getting over, and the new Andhra Pradesh Government and the government at the Centre are expected to kickstart development schemes, demand is expected to increase, which will lead to better prices," said a CEO of a cement company in South, adding that he is 'cautiously optimistic’ on the outlook for the industry in the current year.

Topics :Cement pricesCement demand

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