INDIA: Despite signs of revival, cement demand remains weak

Cement demand continues to remain lacklustre though there are signs of revival in the economy, what with the Reserve Bank of India thrice cutting key bank rates this year.

Many banks, laden with huge loan defaults, have not fully passed on the benefit of lower lending rates to borrowers. This apart, large infrastructure and real estate companies are extremely cautious on fresh investments, given the high debt on their books. However, government spending on infrastructure projects is expected to boost demand from the second half of this fiscal.

Monsoon watch

The industry is keeping watch on the progress of the monsoon, with hopes that better rains could push up demand in rural regions.

The demand in June was better compared to the preceding three months, with increase in spending on infrastructure projects by government. However the housing sector remains sluggish, said a cement dealer.

Amit Kumar Singh, Vice President, Choice Broking said there may be a slight revival in cement demand from the second half of the fiscal, but prices may still be under pressure as companies try to ramp up their capacity utilisation. “The price realisation in the northern States may be better than other regions as fresh capacity addition is lower compared to other places. We expect overall capacity to improve marginally by 72 per cent, compared to 71 per cent last fiscal,” he added.

Except for the southern region, cement prices are under pressure across regions as companies try to increase capacity utilisation by pushing in their produce at the slightest sign of demand revival. The capacity utilisation in the southern States has hovered around 40-45 per cent while it ranges between 70-75 per cent across other States, sources said.

Pick up in June

In June, cement prices rose in a few markets due to seasonal uptick in demand from infrastructure projects before the monsoon and supply discipline adhered by companies, said J Radhakrishnan, research analyst at IIFL Capital.

However, he added, the overall recovery in prices was muted compared with the increase in last few years in June as the monsoon was better so far this year.