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Cement Sector: Prices Remain Soft; Tailwinds in Place for Demand Revival - IndiaNotes.com
Cement Sector: Prices Remain Soft; Tailwinds in Place for Demand Revival
Reliance Securities | Published: 06 Feb, 2018  | Source : IndiaNotes.com

Demand environment continued to remain strong in Jan’18 on low base effect and pick-up in construction activities, albeit lower than Dec’17. While sand issues in several states remained a major headwind for demand growth, improved availability of sand in some of large markets (though at higher price) aided the demand in the month. Our channel check suggests that sand mining activities in several riverbeds in Uttar Pradesh are expected to commence in next few days. However, there is still no clarity on any firm resolution of sand issues in Bihar, Rajasthan, Tamil Nadu and Karnataka. Going forward, it could be difficult for cement industry to attain the desired volume growth in case the sand crisis continues for an extended period, as concept of M-sand is still at a nascent stage in India.


Dealers cited that while real estate demand continues to remain dismal post RERA implementation, affordable housing projects, IHB segment certain section of infrastructure projects (mainly Roads & Highways, Irrigation and Urban Infra) have been the major demand drivers for last couple of months. They expect demand to improve further in coming months due to further improvement in infrastructure activities and rural demand. All-India average price witnessed a moderate 0.9% MoM (Rs3-4/bag) improvement in Jan’18, mainly on account of price recovery to the tune of ~Rs8-10/ bag in Western and Eastern markets. While the prices corrected by ~1% MoM each in Northern and Southern markets, the prices remained flat in Central markets. Prices are expected to be hiked further in current month so as to pass on recent spike in operational cost. Notably, all-India average price on YTD basis has been flat, while the Western and Eastern prices increased by 3.7% YoY and 2.9% YoY, respectively.


-  Low base and pick-up in construction activities aided demand environment to remain strong in Jan’18. Though sand issues remained as major headwind for cement demand, improved availability of sands (albeit at higher price) supported sales volume.


-  Our channel check suggests that sand mining activities in several riverbeds in Uttar Pradesh are expected to commence in next few days. However, there is still no clarity on any firm resolution of sand issues in Bihar, Rajasthan, Tamil Nadu and Karnataka.


-  Dealers cited that while real estate demand continues to remain dismal post RERA implementation, affordable housing projects, IHB segment certain section of infrastructure projects (mainly Roads & Highways, Irrigation and Urban Infra) have been the major demand drivers for last couple of months.


-  All-India average price witnessed a moderate 0.9% MoM (Rs3-4/bag) improvement in Jan’18, mainly on account of price recovery (Rs8-10/bag) in Western and Eastern markets. While the prices corrected by 1% MoM each in Northern and Southern markets, the prices remained flat in Central markets.


-  Further, all-India average price on YTD basis has been flat, while the Western and Eastern prices increased by 3.7% YoY and 2.9% YoY, respectively.

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