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Cement prices likely to fall further, but industry players remain positive

Cement prices in the southern region have taken the biggest hit. Analysts expect prices in the northern and eastern regions also to come under pressure. However, industry players remain positive

Cement prices across various regions in India are currently under pressure. The southern region has been the worst hit by this fall in prices. Going forward, analysts expect prices in the northern and eastern regions to come under further pressure due to the upcoming elections in the east and the end of the Commonwealth Games-driven demand in the north.

"The possibility of a further fall in prices is higher in the northern and eastern regions. Prices in the south have already fallen sharply," said Amit Srivastava, research analyst, Karvy Stock Broking Ltd.

According to a Value Notes research report, realisations in the first half of the quarter of the current fiscal were ruling high by Rs5-Rs15/bag across India. However, from the second half of the current quarter, cement prices started to exhibit some correction due to a slowdown in demand and stabilisation of newly-commissioned capacities. The southern region has again seen the highest fall in cement prices by Rs25-Rs35/bag. Prices in other regions have also come down by Rs7-Rs15/bag.

Prices in the northern region are expected to come under pressure as the demand in growth triggered by the ongoing construction work for the upcoming Commonwealth Games in Delhi will end. Also, for the period during which the games are held, transportation bottlenecks are expected due to security issues. Such bottlenecks are likely to hamper cement movement for that period.

"I expect cement prices all over India to be under pressure at least for the next one year. Presently, major impact has been witnessed in the southern region, due to huge capacities commissioned and lack of demand. Going forward, prices in the northern and eastern regions will also come under pressure, due to new capacities being commissioned," said an analyst from a stock broking firm, preferring anonymity.

Analysts point out around 15 million tonnes of new capacity of cement has been commissioned in the northern region in the first quarter of the current fiscal. This capacity is likely to attain maximum production level in the coming months. With an expected increase in capacity production and decline in demand, prices are expected to come under pressure.

Cement companies in the northern region also cater to the demand from the eastern region. With elections coming up in the eastern region, demand driven by pre- election thrust to construction activities is also likely to decline. "In the eastern region, you have the election season. Once the elections end, there will not be much demand as the pre-election investments would be completed. Thus, demand from this area is not likely to go up. For actual demand, infrastructure projects need to gain momentum, which will take some time," said Mr Srivastava.

Despite this negative outlook from analysts, cement players are positive on the expected cement demand. "We don't see the prices to be under any abnormal pressure. In the monsoon season the demand is also lower, compared to the preceding quarter. As far as the Commonwealth Games are concerned, it impacts only one market - which is Delhi - in the entire northern region. The bottleneck caused due to transportation issues would be a temporary phenomenon lasting for a fortnight; it should not impact prices for an entire quarter or a year," said Rahul Kumar, chief financial officer, Jaiprakash Associates Ltd.

"The coming two months are the monsoon quarter, therefore we see the demand to be under pressure, but this would be similar to what has been witnessed in the earlier monsoon quarters. In the next quarter, we expect a bounce-back in prices, which should start firming up. Traditionally, prices firm up from December-January onwards," Mr Kumar added. Shree Cement, Grasim Industries, Jaypee Cement and Ambuja Cements are the focused players catering to the northern and eastern regions

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