Edelweiss: Cement Channel Check - prices soften due to continued weakness in demand

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Cement prices across regions have softened due to weak demand and inventory built up. With demand yet to pick up significantly, pricing scenario is expected to remain subdued in the coming weeks. North may however, see some improvement in prices due to reduced supply.    

n  November 2010 despatch growth disappointing for major players 

Aggregate despatches of seven players (comprising ~52% of the overall industry despatches) declined 2.3% Y-o-Y. Overall industry despatch growth for November 2010 is estimated be flat or marginally down Y-o-Y. Non-availability of labour, due to the festive season and unexpected rains in parts of India, are key reasons behind the subdued demand.

As per our latest channel check, demand has not picked up across regions, so far in December 2010.

Region-wise summary

We have surveyed 29 cities across India to get a region-wise trend of demand and prices in the trade and non-trade categories. Key highlights are as below:   

     

n  North: Prices may see some improvement 

Demand growth in the region is subdued and inventories are rising. Current prices have declined by INR 10-20/bag across regions over the last month. North, may however, see some improvement in prices due to reduced supply.

n  East: Prices decline due to weak demand

Cement prices have declined by INR 5-20/bag across the region over the last month. Poor demand from government projects and inventory overhang may keep prices under pressure in the coming weeks.

n  South: Prices soften in Karnataka

Even as dealers convey muted demand growth, prices have declined by ~INR 10-20/bag across the region, except Andhra Pradesh. Highest correction was seen in Bangalore of ~INR 10-20/bag over the last month. Prices are expected to remain flat in the near term. Monsoons in Tamil Nadu and Kerala will keep demand muted in the coming weeks.

n  West:  Prices better in Gujarat; weak in Maharashtra

While channel checks continue to convey muted demand growth, prices have seen improvement in Gujarat, while they have softened in Maharashtra. Sand unavailability continues to dampen demand growth.

n  Central India: Prices drop across region; improvement expected in U.P.

With poor demand and increased supply, prices have dropped in the range of INR 10-20/bag across the region. Over the last month channel checks convey flat-to-marginal price decline in Madhya Pradesh in the coming weeks. Sharp price drop in Uttar Pradesh may lead to some rebound in prices.