Cement Dispatch Grew In Double Digits For May 2012

The dispatch growth of cement is looking pretty strong for the month of May 2012. As per the Cement Manufacturing Association (CMA), cement dispatch for the industry stood at 20.24 million tonnes, up by 12.8 per cent YoY. The industry has posted double digit growth during the month. This jump in the dispatch is mainly on account of the better demand scenario and partly due to the low base effect in the same period last year.

The top three cement producing companies i.e. Ultratech, ACC and Ambuja, which account for almost half of the country’s production, have reported decent growth for May. Ultratech and Ambuja Cement’s dispatches grew by 10 per cent and 9.7 per cent on a YoY basis respectively. However, ACC reported a flat 3 per cent YoY growth.

Further, the cement companies in the northern region have again hiked the cement prices by Rs 10 per 50 kg bag in June 2012. The hike in the cement prices has come after a surprise price cut of Rs 5-10 in the months of April and May even before the arrival of the monsoon. The decline in prices in both April and May was rather unusual as prices tend to remain strong at their peaks in these months with the onset of the monsoon.

This was mainly on account of the lower cement demand from the infrastructure and construction industry because of the labour issues and the non-availability of sand, thus halting major construction works. The situation has not changed much in the month of May although the labour issues have been sorted out to a certain extent and workers were seen returning after the summer vacation. There has thus been some improvement in the demand during the month.

Going forward we expect some softening in demand and the cement prices through the monsoon period (between June-September) and improve thereafter. The high power & fuel cost and hike in the freight charges will continue to put pressure on the margins of the cement companies in the next three to four months as the companies will not be able to pass on the cost due to a slowdown in demand.

Over the long term we expect the demand to remain upbeat given the government’s thrust on higher infrastructure spending and a focus on affordable and rural housing as announced in this year’s Union Budget. This will provide a boost to cement demand over the next few quarters. In FY12 the demand grew by 6.9 per cent and this year in FY13 we expect it to remain higher in the range of 8-9 per cent.