Cement prices seen stable for now

Despite Rising production, despatches and imminent monsoon

Cement prices are expected to remain subdued with the imminent onset of monsoon. Though many manufacturers have reported a jump in production and despatches for May, sector analysts are of the view there will be no fluctuation in prices for the next few months.

Urmik Chaaya, cement analyst with Anand Rathi Securities, said, "There won't be any considerable change in the prices. The rise in production and despatches would be countered by the onset of monsoon, which would prevent any fluctuation."

Cement manufacturers registered an increase in production in May. Associated Cement Companies (ACC) posted an increase of 12.02 per cent, while Gujarat Ambuja Cements (GACL) reported a six per cent rise compared with the corresponding period of previous fiscal.

ACC's cement production for the month stood at 1.565 million tonne as against 1.397 million tonne in May 2004, while despatches rose 8.31 per cent at 1.524 million tonne during the month under review from 1.397 million tonne.

On a cumulative basis, the production in April-May 2005 was up by 9.27 per cent at 3.100 million tonne (2.837 million tonne), while despatches increased by 10.81 per cent to 3.095 million tonne (2.793 million tonne).

Meanwhile, production at GACL for May grew six per cent to 11.04 lakh tonne (10.44 lakh tonne).

Despatches for the same period rose by five per cent to 10.97 lakh tonne from 10.42 lakh tonne posted in May 2004. GACL's cement production rose by eight per cent to 117.21 lakh tonne during July-May 2005 from 108.21 lakh tonne produced during the corresponding period an year ago, while despatches rose eight per cent at 117.09 lakh tonne (108.19 lakh tonne in May 2004).

However, the production of GACL's subsidiary Ambuja Cement Eastern (ACEL) fell by 19 per cent to 1.48 lakh tonne in May 2005 (1.82 lakh tonne) and despatches were lower by 21 per cent at 1.48 lakh tonne (1.87 lakh tonne in May 2004).

Nirbhay Mahawar, cement analyst with Motilal Oswal Securities, said, "Cement prices at present are on a historic high, as a result the customers would resist any further hike. Monsoon would ensure that the prices would not go up, at least for the next three-six months. Moreover, the producers are happy over their existing profitability. The very fact that the regional players, such as Shree, Jaiprakash and Dalmiya Cements, are all set to double their capacity, indicates that the cement industry is moving away from cash generation phase to capacity creation which will put pressure on the prices."

The cement sector stocks have performed fairly in line with the general market with exception to a few small cap stocks such as Katwa Udyog gaining 25 per cent from Rs 5.2 to Monday's close of Rs 6.51, Shree Digvijay Cement gaining 19.03 per cent to Rs 87, and NCL India gaining 18.7 per cent to Rs 21.9 since May 1, 2005.

According to Rajagopal, VP, IDBI Capital, "The industry is certainly doing well. But there could be noticeable difference only in case of a delayed monsoon. I would wait for another month, before calling it a steady growth in this quarter."

Among the frontline cement stocks, Birla Corporation has appreciated nearly 9 per cent from Rs 162.50 on May 2 to Monday's close of Rs 177.05. Jaiprakash Associates was up 8.08 per cent to Rs 189.35, Madras Cements has gone up 5.38 per cent to Rs 1,001.15, Mangalam Cement has gained 5.15 per cent to Rs 74.34, Prism Cement has gone up by 4.88 per cent to Rs 19.55, ACC stock has gone up by 4.22 per cent to Rs 380.55 and Gujarat Ambuja has gone up by 3.78 per cent to Rs 446.5.

During the same period, Dalmia Cement (Bharat) was up 0.67 per cent to Rs 398.2 and Shiva Cement was up 0.57 per cent during the same period.