July cement sales surge on rural demand

It was a July surprise for cement companies as they managed to register a growth in dispatches despite revival of monsoon in most parts of the country. The higher sales were mainly due to growing demand in the rural areas and restocking by major dealers.
The revival in cement demand in July was impressive especially after the sharp fall in sales and production the preceding month.
JP Associates reported 18 per cent jump in July sales at 1.45 million tonnes. The addition of new capacity of 3 mtpa (million tonnes per annum) in December boosted ACC sales and production.
Bulk purchase by a few large dealers in the southern region also helped sales in July, said a cement company official. Large cement dealers, especially in the North and the West, have also marked up their inventory in anticipation of improvement in demand post-monsoon, he said.
With revival in demand, cement companies preferred to align their production to demand in July to pass on incremental input cost.
“Most of the daily wage workers in major cities move to their home towns during monsoon and this improves availability of labour in the rural areas. Besides, the labour costs are also marginally lower at construction projects as they also work in their fields,” said an analyst.
The excess supply amid fall in demand in the last few months had made it difficult for cement companies to pass on the spike in raw material cost to end-users. Cement production in the first quarter of this fiscal was down one per cent at 42.36 million tonnes (42.94 mt), while sales were marginally down at 42.16 mt (42.43 mt).
Imported coal prices alone had gone up by 30 per cent, while gypsum, limestone and fly ash prices have also gone up substantially. The rise in fuel prices has also pushed up cost of production for cement companies. The hike in lending rates by banks may depress the cement demand from the real estate sector with many big projects being delayed especially in major metropolitan cities. Another round of rate hike by major banks such as SBI and ICICI Bank cannot be ruled out as they are yet to react to last week's 50-basis- point hike in key by the RBI, said another analyst.
Mr Ravindra Deshpande, Research Analyst, said earnings for the cement companies are likely to be under pressure in the medium term as the industry is witnessing surplus which is likely to put pressure on cement prices.