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While cement prices have been on the upside over the past few months, analysts suggest that they will start falling from next month with the recently added capacities by various players boosting utilisation levels
Cement prices have skyrocketed over the past few months. However, analysts predict a fall in prices in April-May due to more capacity addition. Though the fall is likely to be gradual, the long-term movement of prices will depend on the decisions taken by the major players in the cement sector.
The recent increase in cement prices over the last couple of months with improved off-take due to a pick-up in infrastructure activity is a positive phenomenon for the domestic cement industry. "On the volume front, we expect a sequential improvement due to a pick-up in urban construction and real-estate activity. However, with the stabilisation of the new capacities, the supply is expected to surpass the incremental demand, which will create pressure on utilisation and consequently on cement prices," said Sharekhan Ltd in a research note.
During February, the Indian cement industry posted a moderate 4.3% year-on-year (y-o-y) growth in despatches, riding on healthy demand from the central and western regions. The cement despatches were up by an impressive 13.9% and 8.5% in the central and western regions, respectively.
However, during the same month, all-India capacity utilisation declined to 83% from 92% in the same period a year ago. The decline was highest in the southern region, which recorded utilisation of 69% from 88% last year. The central region however, registered an increase of about 10% to 107% in capacity utilisation buoyed by strong demand arising from the infrastructure and real-estate segments.
According to an analyst with a leading brokerage, who preferred anonymity, companies that have commissioned their capacities in January will witness an increase in capacity utilisation which will in turn impact the volumes in April-May. Till January 2010, 10 million tonnes (MT) of new capacity has been added at an all-India level, he said.
Any planned capacity in cement takes around three to four months time to start operating at higher capacity utilisation levels. Dalmia Cements, India Cements, JP Cement and Grasim Cement are some of the companies that have commissioned their capacities in the past few months.
"Capacity utilisation will increase to 50%-60% in a matter of six months. Also, as we enter the April-May 2010 period, the cement demand that is growing at double-digit growth of around 11%-12%, will also be subdued," said Amit Srivastava, research analyst, Karvy Stock Broking Ltd. He further stated that region-wise, demand in the northern region will start decreasing, as demand from the Commonwealth Games construction activities will end by June-July 2010.
On a long term, basic cement demand is likely to grow at 9.5% to 10% in FY2011. While cement prices are likely to fall owing to capacity additions, the fall is expected to be a gradual one.
"The fall in cement prices would be gradual. Also, companies will start planning their capacity utilisation levels depending on the demand. In the long term, if they are able to achieve this demand-supply equation, cement prices will stabilise. However, companies will be able to reduce their utilisation levels only up to the point that their fixed costs allow them to do so," added Mr Srivastava.
Emkay Global Financial Services Ltd, in a note said, "Though we remain bullish on cement demand (factoring in 10% y-o-y demand growth over FY2010-12E), we expect the bunching up of capacities in Q2FY11-Q3FY11 to put pressure on cement prices. We expect close to 48MT per annum of new capacities to be added over H2FY10 and H1FY11. The steady ramp-up in utilisation of new capacities coupled with the onset of the monsoon is expected to see a reversal of the sector’s recent pricing power by Q2FY11. Overall, we expect the cement surplus in FY2011 to jump three-fold to about 22MT per annum as compared to 6MT per annum in FY2010. Hence, we believe that cement prices are unlikely to cross the previous highs of Rs257 (reached) in mid-July 2009."
Considering the extra cost incurred on electric engines, the company said that the E-Spark's price may be a little higher than the Spark
Automobile major General Motors on Friday said that it would launch the electric version of its small car 'Spark' in the Indian market this year-end.
"We are set to launch our electric car, E-Spark, by the end of this year in India," GM Motors' marketing director, Gaurav Gupta, told PTI in Mumbai.
"It will be an electric version of our small car Spark and will be the first four-door passenger car in the world in this segment," he said.
Considering the extra cost incurred on electric engines, Mr Gupta said that the E-Spark's price may be a little higher than the Spark. "The acquisition price may be slightly higher. But the operating costs will be very low," he said.
The company is entering the Light Commercial Vehicle (LCV) segment as well this year, he said.
The vehicles would be produced by the joint venture formed with a Chinese company, SAIC.
When asked if there was any plan to export engines to China, Mr Gupta said that the company would look at all business opportunities allowed by the laws of both countries.
"As a global company, we will not miss any opportunity. If the norms prevailing in both countries permit, we will look at export of engines," he said.
GM is expecting to sell one lakh units in India this year, Mr Gupta said.
"We are on the growth path. Last year, we sold around 70,000 units. We hope, this year, we can improve this figure to one lakh, with a growth rate of about 50%. We are upbeat on our 'Beat' from which we see more than 40% sales emanating," he said.
The company is strongly focusing on localisation with a view to drive down costs, he said. The company is planning to phase out its model, ‘Aveo’, gradually. "Our aim is to capture a double-digit market-share in India in a few years," Mr Gupta said.
A possible fall in international indices due to the rumblings in Greece may trigger a short-term dip
The upward movement of the market continued for the third consecutive day after the breather. The Sensex closed at 17,519 (up 0.17%), a gain of 29 points and the Nifty ended up with a high of 14 points (up 0.27%) at 5,246. On Wednesday, the Dow Jones Industrial Average closed 47.69 points or 0.45% higher at 10,733.67. The Nasdaq Composite ended at 2,389.09, up 11.08 points or 0.47%; the S&P 500 was at 1,166.21, up 6.75 points or 0.58% on Wednesday.
After a flat opening, the Indian market struggled in the negative throughout the day. After hitting fresh intraday lows in mid-afternoon trade, the Sensex pared losses and ended in the green. European shares slipped back from the previous session's 17-month closing highs in early trade on Thursday, with banks and commodity stocks taking the most points off key indices. The key benchmark indices in France, Germany and the UK fell by 0.1% to 0.23%. Asian stock markets fell on Thursday on reports that Greece may seek financial help from the International Monetary Fund as there is little hope for aid from the European Union.
The biggest gainers in the Sensex today were Jaiprakash Associates (up 2.5%), Reliance Communications (up 2.1%), Infosys Technologies (up 1.6%), Hindalco Industries (up 1.5%), Reliance Energy (up 1.4%), and ICICI Bank (up 1.2%).
Bharti Airtel rose marginally on reports that the company had applied for 3G mobile spectrum bids in all of the country's 22 telecom circles. Auto stocks fell on rising raw material costs. Hero Honda Motors fell 0.48%. Hero Honda has shortlisted Karnataka as one of the states for setting up its fourth manufacturing plant. Maruti Suzuki India fell 1.14%, extending recent losses triggered by fears that increase in competition may dent sales. Last week, Ford India entered the small car market with its 'Figo'.