Tamil Nadu Sand Mining Ban Could Hurt Cement Prices In Other States Too
Will South-based cement companies regain pricing power?
.jpg?rect=0%2C103%2C3943%2C2218&auto=format%2Ccompress&w=200)
With the impending closure of all sand quarries in Tamil Nadu, South-based cement companies are bracing for tougher times ahead. But the impact is not limited to Tamil Nadu.
Last month the Madurai bench of the Madras High Court ordered the closure of all sand quarries in the state and that no new quarry be permitted, according to a report in the Times of India.
This will further exacerbate the poor cement demand and price situation, say analysts.
The recent sand mining ban would further impact construction activity in Tamil Nadu, with companies like India Cements Ltd. and Ramco Cement Ltd. worst hit as they have a larger presence in the state, said Murtuza Arsiwalla, institutional equities analyst at Kotak Securities. Others such as ACC Ltd. and UltraTech Cement Ltd. along with Dalmia Bharat Ltd. stand relatively less impacted by the ban.
Impact On Cement Prices
Notably, this order comes shortly after the Supreme Court, in November, ordered a sand mining ban in Rajasthan. Sand shortage concerns in Rajasthan, Bihar and Tamil Nadu along with the impact of the The Real Estate (Regulation and Development) Act, 2016, is expected to hit cement demand and prices in the near term, according to a Centrum Broking report.
In Karnataka and Tamil Nadu markets, poor availability of sand and elevated sand prices continue to plague demand. Dealers don’t expect demand to return to normalcy in these markets and prices to recover in December in Tamil Nadu unless sand problem is resolved.Centrum Sector Update - Dealer’s Check
Already cement prices are hurting. For the month of November, the price per 50 kg bag has dropped by Rs 25 on a year on year basis and Rs 16 when compared to October. Only central and eastern regions winessed a price hike, according to a report by Kotak Securities.
The sand availability issue has persisted since last year in Tamil Nadu, said Hemant Nahata, analyst at IIFL Wealth Management. This recent high court decision will hurt demand and could lead to pricing pressure in the neighbouring states of Kerala and Karnataka as well as some parts of Andhra Pradesh too, he added.
Nahata further explained that most of the affected cement companies will divert supplies to neighbouring states to counter volume erosion.
Notably, a total of 188 large cement plants together account for 97 per cent of the total installed capacity in the country, 365 small plants account for the rest. Of these large cement plants, 77 plants are located in the Southern states alone, says the India Cement’s annual report for 2016-17.
In its recent earning conference call the company suggested that performance in the quarter was subdued on account of lower demand in Tamil Nadu. The management added that it continues to face difficulties due to the sand mining issue as well as stalled sand imports.