Cement dispatch up 19.7% in Nov 2011

The Cement Manufacturers Association has released the cement production and dispatch numbers for the month of November 2011 which shows that the production for the month has increased by 17.4% whereas dispatch has strongly grown by 19.7% on a YoY basis to 14.08 million tonnes against that of 11.76 million tonnes in the same period last year.

However, the higher growth in dispatch is largely due to the lower base witnessed during the same month last year due to weak demand and lower production by some of the companies. The dispatch numbers for the period April-November has grown at a slow pace by 3.8% on a YoY basis, thus indicating lower growth in demand over the past eight months.

Moreover, if we look at the month-on-month performance, the numbers are not quite encouraging. The production and dispatch have declined by 5.4% and 2.1% respectively. The decline in the dispatch indicates that November has again remained a subdued month for the cement industry.

The lower demand is due to slow pick-up in the infrastructure and construction activity which generally tends to be high after the monsoon period. However, this time, due to the high interest rate and a slowing economy, we are unable to witness any major improvement in the development activities, thereby leading to lower cement consumption.
 
At a time when the demand is struggling to see any uptake, the cement companies have raised the prices across the country from October 2011 onwards. These have shot up by Rs 10-l5 per 50 kg bag in most of the regions. The prices have further been raised by Rs 3-5 per 50 kg bag in November as well. Even the southern cement players, after maintaining the price in the last quarter, have increased the prices in November. We believe this increase in price will stop here and may not be sustained in the coming months due to weak demand in the region.

We also feel that the demand will slowly pick up pace over the next few months, especially at the end of the year. Further, we expect it to gain pace in Q4FY12 when construction and infrastructure activity reaches a peak level. The companies in the current quarter will witness decent growth in revenues largely because of the higher cement prices which have been continuously hiked by the cement players by reducing the production levels.

The higher prices will offset the lower contribution from the demand side but won’t be adequate to offset the higher input cost such as freight charges and coal prices which continue to remain high. Therefore the margins for the quarter will remain under pressure.