Cement Companies Slashes Cement Prices Over Weak Demand

With ACC and Ambuja Cement reporting lower sales numbers in April, this has raised concerns about the performance of the cement companies in the coming quarter. The dispatch numbers for ACC and Ambuja Cement grew by 0.98 per cent and 1.6 per cent on a YoY basis and declined by 12 per cent and 14 per cent on a MoM basis respectively.  The decline in the sales volume is mainly on account of the slowdown in the infrastructure activity in the country even before the onset of the monsoon. This slowdown can be attributed to the shortage of labour across the country, it being a period when most of the workers go back to their villages.

The cement prices in the northern and western regions have started softening from a peak of Rs 300 per 50 kg bag even before the onset of the monsoon. The prices are slashed to sustain the tepid demand in the country and have corrected by an average of Rs 10-15 to Rs 285-290 per 50 kg bag. This is further expected to come down to around Rs 260-270 as construction activities will slow down all the more with the arrival of the monsoon.

The hike in the cement prices in the March quarter was on the back of improvement seen in demand. However, with the arrival of the monsoon leading to sluggish construction activity in the June quarter, there will be a slowdown in the consumption of cement and consequently prices too will start moving in the downward direction.

This time there is a larger issue of not only the slowdown in demand and falling prices but also the increase in the input costs and freight charges which constitute a major cost component of the cement companies. A major blow to the companies this time is from the recent 20 per cent freight hike put into effect by Indian Railways which will have an impact on the margins of the company in the June quarter.

In the March quarter the cement companies passed on the freight hike by increasing the cement prices, which was supported by a better demand scenario. But now, with the demand situation not looking good, cement companies will have to bear the brunt in the coming quarter.