Failure of Cement Sector to Sustain Price Rise: Will Cement Prices Fall in Response to Demand in Dream Cities, Government Push on Infrastructure, Monsoon Outlook – Industry News

After a marginal price hike in April, pan-India cement prices declined due to the general elections, heatwave and excessive rainfall in some states. According to a report by InCred Equities, cement prices in India have declined by Rs 3-4 per bag (around 1 per cent) month-on-month in May 2024 and by Rs 4-5 per bag (around 1.5 per cent) till date in Q1 FY25F . However, the report shows that some regions may attempt to increase prices in June 2024, after the elections end and the Narendra Modi-led NDA government takes power, and before the onset of monsoon. Maintaining the increase will depend on demand that has been unusual for several months.

Demand in various regions

InCred Equities says demand continues to be weak in the south, leading to a reversal of the April 2014 price increases. South India we saw a decline of Rs 6 per bag on a month-on-month basis and prices in Hyderabad were Rs 350 per bag as against Rs 360 per bag per month. While some southern states experienced unseasonal rains in May 2024 that caused disruptions in the English Channel, dealers have pointed to price increases in the coming times.

The East saw a price decline of Rs 1-2 per bag, with pent-up demand in all regions and labor shortage due to the general elections. There was no price increase in May, and dealers said there was “almost no room for prices to fall further.”

expect a price hike of Rs 5-10 per bag in June 2024 once normal operations resume after the general elections.”

In the northern region, cement prices dropped by Rs 2-3 per bag in May 2024. However, according to the report, dealers expect some recovery in demand this month due to the seasonally late arrival of monsoons in the region, but the persistent heat wave remains a concern for construction activities in the region. InCred Equities expects price increase in June 2024.

West saw prices drop by Rs 4-5 per bag in May after prices remained stable for the past two months. “Prices in Gujarat have come down by Rs 6-7 per bag per month due to the intensity of competition. In Maharashtra, prices remained stable. Dealers expect demand to recover from June 2024.” – said InCred Equities.

Central India saw a decline of Rs 2 per bag. Although dealers expect a slight recovery in demand, they do not expect price increases in June.

An earlier report by Elara Capital had stated that the all-India average retail price of cement declined month-on-month by Rs 4 per 50 kg bag to Rs 356. However, she added that most of the market participants expect demand conditions to improve further in June and cement companies may attempt to increase prices in the range of Rs 10-50 per bag during the month, with higher price hikes likely in eastern India.

So what will prove to be the key demand drivers?

While InCred Equities maintained that industry volumes would continue to be impacted by a slowdown in construction activity due to the general election, heat wave and excessive rainfall in some states in May 2024, it did not signal any chance of a significant recovery in demand in the near term (1HFY25F ), given the general election results, followed by the monsoon season, which, as a historical trend, slows down demand. However, he added that long-term demand will remain unchanged thanks to key factors such as infrastructure and housing segments.

The infrastructure sector accounts for over 24 percent of cement demand, which is expected to grow at a faster pace, mainly due to the government’s robust infrastructure development initiatives. “Over the last four years, the government’s allocation for capital expenditure (capex) has increased three-fold, indicating a significant commitment to infrastructure development. We believe that the development of tourism infrastructure will bring additional growth,” InCred Equities said.

Moreover, with the announcement by Andhra Pradesh Chief Minister N. Chandrababu Naidu that Amaravati will be the state capital, extensive infrastructure development works will be carried out in the city to give it a new lease of life. By industry It is estimated that around Rs 40,000 crore will now be required to build infrastructure and various government buildings in the city on the banks of the Krishna River, which is almost double the expenditure of Rs 21,000 crore estimated by the Andhra Pradesh Capital Region Development Authority (APCRDA) during the previous Naidu’s tenure as chief minister.

Apart from this, the housing sector is also gaining momentum with India transforming into a middle-income country with stable lending rates. Moreover, Modi 3.0 also approved the proposal to provide 3 crore additional rural and urban houses under Pradhan Mantri Awas Yojana (PMAY). This will further help revive demand.

Moreover, ICRA in one of its recent reports, stated that large cement companies, based on good demand prospects in the cement sector, want to increase their production capacity and maintain market share through organic and inorganic expansion. According to ICRA, the market share of the top five cement manufacturers increased sharply to 54 percent in December 2023 from 45 percent in March 2015 and is expected to further increase to 55 percent by March 2025, leading to consolidation in the industry cement.

Anupama Reddy, vice-president and associate group head, Corporate Ratings, ICRA, said, “While organic growth is expected to continue in the medium term, cement companies are also preferring the inorganic route to quickly expand production capacity, leading to consolidation in the industry.” There have been 15 mergers and acquisitions in the cement industry over the past nine years, and the average cost of mergers and acquisitions ($80/MT) was lower than the cost of setting up an integrated cement plant from scratch ($110-120/MT), leading to capital expenditure savings. This, added Anupama Reddy, further entails access to ready production capacity, limestone reserves and avoids the hassle of longer preparation periods to stabilize operations in the case of a greenfield unit.