Cement prices fall in March 2019

Cement prices fall in March 2019

Dnyanada Kulkarni
/ Categories: Trending, DSIJ News

Cement prices were on a path of ascension until March 2019. This trend continued until the companies had to roll back the hike to a certain extent in the northern and southern regions due to subdued demand.

The all-India prices had risen by Rs 7 for a bag of 50 kg to Rs 342. The price hike happened despite lethargic infrastructure activity brought on by Holi. Moreover, the prices were also immune to some degree to the year-end volume pressures that normally diminish pricing power.

Thus, investors were inclined to believe that the cement industry was reclaiming its pricing power. However, what remained to be seen was whether it could retain the same.

Well, investors don’t have to wonder much longer as the prices have fallen by Rs 2 per bag of 50 kg to Rs 305 in March 2019. In the South, lacklustre demand growth weighed on cement prices as the excess capacity was not being absorbed. Thus, the South witnessed a price cut of nearly Rs 15 per bag to Rs 314.

Furthermore, the prices in Hyderabad, Kerala and Bengaluru declined by as much as Rs 20 per bag. In the previous month, the prices had risen by Rs 30-50 per bag in the same regions, led by cement makers in the South.

Prices also declined marginally in the eastern regions, while they remained mostly flat in other regions.

The rollback in cement prices was triggered by multiple factors. Apart from excess capacity not being absorbed due to muted demand, cement firms are struggling under the year-end pressure to meet sales targets. As such, these companies tend to make up for volume growth at the expense of prices. Labour shortage in certain regions is also a concern.

Although the all-India cement prices increased 3 per cent sequentially in the March quarter, keeping aside the recent fall, there seems to be little room for cement price hikes.

Moving forward, in anticipation of a busy construction season, the first-half of the calendar year is usually the most promising for cement companies. The expectation of greater demand and utilisation usually prods the cement companies to go for price hikes.

It goes without saying that pricing is the most important factor which will determine the profitability of cement companies in the months and years to come. Based on a sensitivity analysis conducted by CLSA Ltd., every 1 per cent change in realisation results in a 5-8 per cent change in earnings per share.

Forecasting the prices of cement is a daunting task as the industry has witnessed cases of both pressure and stability alike, irrespective of demand, utilisation or the cost cycle. Thus, industry behaviour and discipline are the governing factors that drive pricing of cement. We can expect volatility to be high for cement in the upcoming quarters.

Needless to say, for cement companies to make money, both demand and capacity are in dire need of substantial improvement. As of now, however, the prospects of growth in cement realisations are slightly bleak.

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