Published on 5/11/2019 12:18:25 PM | Source: Reliance Securities Ltd

Cement Sector - Demand and Prices Remained Muted in Oct`19 Recovery Expected in Nov’19 By Reliance Securities

Posted in Broking Firm Views - Sector Report| #Cement Sector #Sector Report #Reliance Securities Ltd

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Demand and Prices Remained Muted in Oct’19; Recovery Expected in Nov’19

* Demand momentum remained soft in Oct’19 due to extended monsoon, sand shortage and festivals. However, there has been moderate improvement in monthly comparison in most pockets. We note that unlike companies, most dealers are still sounding cautious about any strong surge in demand in the near-term, as they believe there is still not much progress in government projects. However, recovery in rural demand after festivals and harvesting will result in volume recovery. A persistent delay in payments for infrastructure projects compelled several construction companies to slow down the pace of execution, which still continues to remain a major challenge for demand recovery.

* All-India average price declined marginally by ~1% MoM to ~Rs305-310/bag mainly due to sharp price decline in AP and Telangana, while it is higher by ~3% on YoY comparison. Northern, Central and Eastern region broadly witnessed flat to marginal improvement, while average realisation in Southern and Western regions declined by ~5% and ~1%, respectively MoM during the month. However, non-trade price broadly remained flat MoM in most of the pockets.

*  Dealers further opined that there might be price increase in the coming weeks with the expected pick-up in demand momentum. However, it may see moderate softening in Dec’19, as the companies may try to push volume towards the end of calendar year.

*  A look at average region-wise price on YTD basis shows that industry’s average price is up by ~6% YoY, mainly led by 13.5% increase in Northern region followed by ~7% increase in Central region. However, on sequential comparison average price is down by ~1.5% led by major price contraction in Western, Southern and Eastern markets.


Northern Region: Prices Recover by ~1% MoM

* Demand momentum in Northern region has been improving month after month since Sept’19, as demand witnessed moderate improvement in Oct’19 mainly led by continued traction in construction activities after monsoon. Dealers expect demand momentum to improve further in current month however, labour issue may pose challenge. Notably, average price in the region recovered moderately after four consecutive months price decline. We note that continued uptrend in the cement prices being witnessed during Feb-May’19 puts the Northern region in a sweet spot despite continued moderate price decrease during June-Sept’19. Average price in the region currently rules at ~Rs305-310/bag (+9.6% YoY and +1% MoM).

* Average price in Delhi/NCR, having witnessed ~Rs10-15/bag price decline in Sept’19, recovered by ~Rs8-10/bag MoM in Oct’19 to ~Rs355-360/bag. Non-trade average price broadly remained flat on MoM basis at ~Rs300-305/bag. As per the dealers, continued slowdown in projects execution is still impacting demand, MoM volume increase is mainly due to pent up demand. They do not expect any price increase hereon and expect the demand momentum to pick-up further in the coming weeks

* Demand momentum in Jaipur, Rajasthan improved moderately in Oct’19 as pent-up demand resulted in better sales volume MoM. Therefore, average cement price increases marginally by Rs3-5/bag MoM to ~Rs325-330/bag. Further, the Supreme hearing is scheduled on 18th Nov’19 pertaining to sand mining ban in the state. The state government has already submitted the replenishment study report to the Union Ministry of Environment and Forest as per the direction of the Supreme Court. The state government is looking forward to the lifting of sand mining ban in the state.

* Domestic cement companies in Amritsar continued to get benefitted in Oct’19, as the flow of Pakistani cement is at all-time low now. Again, decent sales volume resulted in resilient pricing, which is ruling at ~Rs340-350/bag with non-trade price lower by Rs40/bag at Rs310/bag. Dealers further cited that the prices are likely to remain flat in the current month

*  Average price in Chandigarh increased marginally by ~Rs3-5/bag on MoM basis at ~Rs355-360/ bag. As per the dealers, demand momentum improved on MoM basis due to pent-up demand and pick-up in construction activities. They further cited that labour issues have started erupting in the projects sites due to harvesting season.


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