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Cement Production Cut on Slow Demand Growth

Weak demand due to a heavy monsoon and a lull in infrastructure projects is likely to have depressed growth in cement despatches in August 2010.

Slow growth in industrial production could also be a hint that investment and economic activity in July slowed down. On the supply side, production capacities set up in the past 2-3 quarters have started to stabilise and yield results, keeping prices low.

ACC, the country’s second-largest cement maker, recorded a 4.9% Y-o-Y fall in sales in August. Group company Ambuja Cement reported a marginal fall from 1.42 million tonnes to 1.41 million tonnes. Output of the Aditya Birla Group was up 2.4%, while that of Jaiprakash Associates up over 50%. JP Associates, predominantly north-based, reported an increase in despatches due to doubling of capacity and higher demand in north India, mainly due to the Delhi Commonwealth Games.

Despatches in the first five months of FY11 are estimated to have grown 4.8% YoY. The high base of 12.6% for the year-ago period, coupled with heavy monsoon and a slowdown in infrastructure projects, has depressed despatch growth in the cur-rent year. The base will turn favourable for the next seven months as growth last year was at 8.4%.

With monsoon being better than expected, farmers’ incomes are expected to rise. Improved earnings are likely to fuel demand from housing and construction activities. However, double-digit growth seems unlikely.

While cement prices have shown a downward trend over the past few months, with demand in south India being the worst-hit, some companies have raised prices in the south, claim dealers. This has left industry analysts mystified and searching for probable reasons.

Cement prices are to expected to be raised in key markets of Hyderabad and Chennai by Rs30-35 per 50kg bag with effect from 7 September 2010. Cement prices in Hyderabad which were hovering at around Rs138-140 per bag, will go up to Rs178-180 a bag. Similarly, cement prices in Chennai market which were at Rs175-180 a bag will be raised to Rs215-220 per bag. 

However, the dealers believe that given the sluggish cement offtake and adequate supply, the markets are unlikely to absorb such a sharp price hike.

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