Thursday, November 24, 2011

>CEMENT SECTOR: Seasonal uptick in prices continue

Key highlights of our interaction with cement dealers across the country:

Northern Region: Price hikes continue
Prices in this region have surged by Rs5-15/bag over the last month. The
availability of cement in the region has improved m-o-m. Though few orders for
non trade segment has commenced in certain pockets, major supplies are still
being diverted to trade segment to exploit the premium of Rs10-15/bag.
The region is showing slight improvement in the offtake but demand still hasn’t
reached high levels expected post the festive season. Meanwhile, producers are
making attempts to push further hikes with pockets like Haryana and Amritsar
expecting announcements of price increases in the coming week. However given
sharp prices hikes over last 3 months, we expect prices to stabilize at current
levels, given the fact that cement offtake is yet to improve meaningfully. Also with
the advent of winter season (which usually impacts construction activity in late
December & January because of extreme temperatures) we believe that any
further hikes are unlikely to get absorbed immediately).

Eastern region: Spike in clinker prices push up cement prices, further price hikes unlikely to be absorbed
Major price hikes of Rs20-25/bag have been taken in the region over the last one
month. This is the fourth consecutive month where producers have hiked prices
with the latest hike coming in on 22nd November. Main reason for this surge is the
spike in the prices of clinker in the region pushing cement prices further up. From
the lows of Rs235/bag in July-11 cement prices have improved by ~Rs60/bag
(+25%) to current levels of Rs290-293/bag.
Demand remains at the same level as last month. However dealers believe that
the prices have almost reached their peak and even if demand improved from
hereon it would not give much room for prices to be triggered upwards as the
markets would not be able to absorb such high price.

Western region: Further hikes expected led by improvement in offtake
Cement prices in this region have increased by Rs5-10/bag over the last one
month. Though offtake has improved marginally for the region, it is expected to
gain momentum only by December-11.
Dealers are expecting another round of hikes to happen in the next 10-15 days
itself. We believe that unlike other regions, west has the capacity to absorb the
price hikes as it is expected to show improvement in offtake to back up these

Central Region: Weak demand making absorption of hikes difficult
Demand in the region remains at almost the same level as last month. Prices were
hiked by Rs5/bag only in certain pockets like Meerut. However attempts of hikes in
other parts of the region have not materialized owing to the lack of healthy demand
growth. Currently prices are just Rs10-15 / bag away from their YTD highs.
Though areas like Bhopal are expected to hear hike announcements to the tune of
Rs10/bag in the coming week, it remains to be seen whether it could be absorbed by
the market. Dealers expect demand to show recovery only by December.

Southern Region: Prices hold fort despite monsoon slowdown
The region continues to be plagued by multiple issues with Political situations in
Telangana and Karnataka and additionally the monsoon season further dragging
down the cement offtake in this region. However led by producer discipline, prices in
the region hold fort in most pockets with slight reduction seen only in Tamil Nadu.

In certain regions like Hyderabad, brands Ultratech and Bharti have rolled back the
discounts extended to dealers as a result of which prices for these brands have
increased. Demand continues to be in the negative with offtake expected only post

To read the full report: CEMENT SECTOR