Cement Prices Rose In May As Utilisation Levels Jumped, Say These Brokerages
Supplies were restricted due to labour shortage, logistical constraints and lower raw material availability, the brokerages said.
Cement prices rose in May even as a national lockdown imposed following the Covid-19 outbreak stalled all forms of economic activity, according to two brokerages.
Kotak Securities and Emkay Global Financial Services said that the prices of the construction material have risen by up to 10 percent over the previous month, according to their channel checks of dealers.
Kotak Securities said cement makers have increased prices by about 10 percent in May to Rs 382 per bag, led by players in south India. Volumes, the brokerage said, rose by 15-20 percent year-on-year in April, and by nearly 35-40 percent in May.
It also said while slowing demand due to the lockdown was a known factor, supplies were restricted on the back of labour shortage, logistical constraints and lower raw material availability in April and May.
Emkay Global said its channel checks revealed that cement prices have risen by nearly Rs 20-30 per bag in the northern, western and central markets. Prices have been hiked by about Rs 20-25 in all states in the eastern region, it said, adding that the hike was Rs 50 in Bihar. The hike ranged between Rs 40 and Rs 90 in south India.
The brokerage said if the trend persists, then the price improvement in the ongoing quarter should range between 6 percent and 16 percent—bettering its initial expectations of 1 percent increase over the previous quarter.
Emkay Global also said cement prices in north, central and southern India are at their all-time highs. “The increase in cement prices is significantly above our estimates,” it said. “While cement prices have been volatile historically, the sustainability of prices at these levels may have an upside risk to our estimates.”
Emkay Global also said that volume trends till May 17 in the northern, central and eastern markets were better than expectations.
That comes even as demand has decreased over the previous year across these regions—by 15-30 percent in different states in the north; by 15 percent in Madhya Pradesh and 30 percent in Uttar Pradesh. In the eastern region, demand has fallen 20-30 percent in West Bengal and Bihar, and 5-10 percent year-on-year in Chhattisgarh and Odisha.
The decline in demand in southern and western India, it said, was in line with its estimates and also the highest in the country—45-50 percent.
Demand Drivers
Emkay Global said demand is being driven by higher rural consumption like completion of unfinished housing work and activities like road/highway construction. Demand from government-led infrastructure and rural housing projects should drive growth from the second half of the ongoing fiscal, Kotak Securities said.
Both the brokerages, however, rule out a V-shaped recovery in demand. Kotak said industry volumes will decline 15 percent year-on-year in the ongoing fiscal.
While Emkay Glonal has factored demand decline of 19 percent year-on-year in FY21, it expects volumes to halve in the quarter ending June, and drop by 18 percent and 10 percent in the next two quarters. Although volume trends are better in a few markets in May, its sustainability needs to be seen, the brokerage said.