Southern woes make cements slippery
₹19 month-month (m-o-m) to ₹359 a bag, said an analyst from Nomura Financial Advisory and Securities (India) after interacting with dealers recently. This means healthy prices seen in October and November have failed to sustain as weak demand conditions have led to partial rollbacks. Unseasonal rainfall in Tamil Nadu caused by cyclone Michaung in December end, delayed infrastructure spending by state governments in key markets of Kerala, Telangana and Karnataka and labour unavailability have weighed on the region’s demand growth and consequently, prices.
In effect, prices in some key markets such as Kerala fell by 9.6% m-o-m and by 6.8% m-o-m in Chennai, according to the Nomura report dated 9 January. Since labour unavailability issues are expected to linger, a meaningful revival in the near-term demand is not expected. Ramco Cements, India Cements, Orient Cement and Dalmia Bharat are among companies that have significant exposure to the southern region.
A continued further drop in prices would mean bleaker realizations outlook for this region. Amid increased competitive pressures, volume growth is seemingly taking prominence over realizations growth. So, analysts caution that a relatively higher price volatility in the south is likely to persist.
Plus, the region already suffers from the problem of overcapacity. This is feared to keep capacity utilization levels comparatively lower than other regions, thus containing a sharp uptick in realizations at bay. In the next two financial years, 15-17 million tonnes of grinding capacity is expected to be added in south India based on announcements made by the cement companies so far, said Ravleen Sethi, associate director, CareEdge Ratings.
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