IIFL: Cement: Dealer check – supply pressure eases in south

Cement: Dealer check – supply pressure eases in south
• Cement prices in the south increased by another ~Rs30/bag
last week (taking the overall increase over the past one
month to 50–80%); further hikes indicated by producers.
• Dealers in the south are sceptical of prices being raised
further, as supplies has started improving in recent days.
• Kolkata dealers told us that supplies from Andhra Pradesh
continue unabated, and are putting pressure on prices; prices
have declined by Rs10–15/bag in the past 10 days.
• Prices in the north increased by Rs10–30/bag, as demand has
started improving after a severe flood in the region receded.
• We maintain our negative view on the sector, as valuations
continue to be expensive and not reflective of deteriorating
fundamentals.
South - supply tightness reduces: Cement prices in Chennai have
increased from an average of Rs170/bag to Rs260/bag in the past one
month, with price discipline back in the south. Supplies were restricted
for price hikes to come into effect, but according to dealers, the
tightness has eased in the past one week. According to dealers,
producers have indicated another price hike of Rs15/bag from the third
week of October 2010, but dealers are sceptical, as supply tightness has
eased, and consumers are not pressing for volumes. Demand in Tamil
Nadu is stable, as the government-sponsored low-cost rural-housing
project is gaining traction, making up for the sluggishness in urban
housing. Cement prices in other southern states are also up ~Rs100/
bag in the last one month. Demand in other southern states continues
to be sluggish.

West – weak demand puts pressure on prices: In Mumbai, price
hikes of Rs8–10/bag expected in the last week of September 2010 were
not implemented by all producers, as demand improvement has fallen
short of expectations. In Gujarat, prices were raised by Rs10/bag,
against the initial announcement of Rs15–20 per bag, as demand
continues to be sluggish, and producers want to first assess how the
market absorbs volumes from re-start of Jaipee’s Kutch unit and launch
of India Cements’s product from a new plant in Rajasthan. In eastern
Maharashtra and Pune, prices increased by Rs5–10/bag in the past
week, as prices in Andhra Pradesh went up.
East – sluggish demand and unabated inflow from south leads to
partial rollback in hikes in Kolkata: Producers increased cement
prices in Kolkata by Rs15–20/bag in the fourth week of September
2010. Prices were reduced by Rs10–15/bag in the last two weeks, as
demand remains sluggish and southern producers continue to sell at a
sharp discount. Eastern producers are selling cement at Rs230–
250/bag, while producers from the south are selling at Rs210/bag in
Kolkata. Prices in Patna were increased by Rs20/bag by top producers,
but mid-sized producers increased prices by Rs5-10 per bag only;
demand in Patna remains strong. In Bhubaneswar, cement prices were
increased by Rs10–15/bag in the retail segment and Rs5/bag in the
institutional segment.
North – improvement in demand after the flood receded leads to
price hike: Demand has improved in the last two weeks in the northern
markets (except New Delhi) as the floods receded; this has led to prices
being hiked by Rs10-30 per bag from the start of October 2010. Dealers
indicated that a further hike of Rs10 is likely this weekend, as supplies
are likely to be disrupted on account of a maintenance shutdown at
Ambuja Cements’s Himachal Pradesh plant and a transporters’ strike in
Himachal Pradesh.
Central – producers’ discipline firms up prices: Prices were
increased by Rs15–20/bag in the fourth week of September, as some
producers were making losses at the EBITDA level. Producers plan to
increase prices by another Rs10/bag, as demand is stable.