Deficient rain this monsoon worry farmers and economists alike, but one sector which is benefiting is cement. The delayed monsoon had already extended construction activities in June and the current month continues to be the same in cement consumption.
Though the industry's sales data are not available, thanks to the Competition Commission of India’s (CCI) verdict last month, sector analysts say growth in demand would be in line with that witnessed in May. This would mean the previous month would have witnessed growth of at least eight-nine per cent, say experts.
Teena Virmani, vice-president, Kotak Securities, says, "Monsoon delay has ensured extension of construction activities, which is proving fruitful for cement makers."
Interestingly, despite CCI's order asking the Cement Manufacturers' Association to refrain from collecting data of production and dispatches and circulating it among its members, the all-India average price of a 50-kg cement bag has bounced back to above Rs 300. In the first half of June, prices had dipped to Rs 290-295 a bag. In July, it surged again.
"Surge in prices is an indication that demand for cement continues to be robust," said a research analyst at a local broking firm. This also reflects the share price movements of cement majors.
Generally, by mid-June the consumption demand begins to decline, and the scenario worsens during the July-September quarter due to the monsoon. Last June, growth was a meagre 1.6 per cent year-on-year.
The chairman and managing director of a north India-based cement company, who talked on the condition of anonymity, says, "Demand continues to be in line with the earlier months of this financial year. Since prices are a function of demand, they tend to rise on account of higher consumption." In April, the industry's growth in sales stood at 6.3 per cent, which climbed steeply to close to 13 per cent in May.
He refrained from commenting on CCI's order on controlling production, but added that several plants across the industry were going through their annual maintenance and repairing tasks, which might have reduced supply. Cement companies shut their units during this period for 10-15 days (in some cases even for three weeks).
But there is a word of caution, too, from industry officials and sector analysts. According to them, in the short-term scenario, a delayed monsoon may be proving good but in the long term it may hit the industry too.
"The growth in this sector is generally 1.1x-1.3x of the gross domestic product growth rate. If rains remain deficient, demand for cement from rural and semi-urban regions too would be hit. Construction activities cannot take place without water, and if water remains deficient, construction activities will slow down, which will, in turn, hit consumption," explains an industry veteran.
The overall capacity of the industry is 330 million tonnes per annum. UltraTech Cement, ACC, Ambuja, Jaiprakash Associates, India Cements and Shree Cement control a little over half of the market.
