Revival in monsoon leads to lower cement demand

MUMBAI: A revival in the monsoon led to lower construction activity in the month of August 2012. This resulted in correction of cement prices across the country.

Large sized cement manufacturing companies like Ambuja and ACC have on an average posted a 5% y-o-y decline in the cement dispatches for August 2012. This trend is likely to be followed by small and mid sized cement companies. The lower demand was mainly due to pick up in monsoon in South and Western part of the country in August 2012. As a result, on a sequential basis, cement prices fell by Rs 10 to 30 per bag in these regions. The average cement price across the country was around Rs 290 per bag of 50 kgs.

Going forward, due to a lower order book of construction companies, cement demand is likely to be muted. Besides, incremental capacity addition is likely to keep cement prices under pressure. Capacity utilization in FY12 was 76% as against the peak demand average of 85%. In the present financial year, due to commissioning of new capacity, capacity utilization is likely to remain lower than last year. However, an increased spending on infrastructure by the government may increase demand for cement in the coming quarters.