Cement sales fell sequentially across India during August/September amid good monsoon progression and was also impacted by near-term drags of GST & RERA. On YoY basis, Q2FY18 sales grew 10 per cent + in north/east/Andra Pradesh-Telangana regions and were flattish in western region. The central and southern regions demand marginally declined YoY as per industry estimates.
Amid QoQ, weak demand and GST benefit pass through, average pan India trade price fell 3 per cent /2 per cent /1 per cent MoM during July/August/September. Adjusted for ~2-3 per cent reduction in effective tax rate post GST, average trade prices during Q2FY18 is expected to decline 5 per cent /3 per cent /4 per cent /1 per cent /3 per cent QoQ across north/central/east/west/south markets, leading to a pan India price fall by 3 per cent QoQ.
Mixed sales growth trend across India during Q2FY18
During Aug and Sep 2017, sales moderated MoM driven by good monsoon across most parts of India, as per our interactions with cement dealers and marketing executives. Sales were also impacted due to near term drag of GST and RERA. However, on YoY basis, sales rose 10%+ during Q2FY18 in the northern and eastern regions and in AP/Telangana largely driven by increased execution of various government projects. Sales declined YoY during Q2FY18 in the central and southern regions mainly dragged by sand shortage in Uttar Pradesh and Tamil Nadu. Tamil Nadu and Kerala markets are also reeling under slackness in government projects’ execution. Western region sales growth during Q2FY18 has been flattish as per industry estimates.
Seasonal price weakness across India
Seasonal demand weakness drove 2 per cent /1 per cent MoM reduction in average trade price (pan India) during August and September 2017. Prices corrected across all regions. During Q2FY18, average trade prices fell by 8 per cent /5 per cent /6 per cent /4 per cent /5 per cent QoQ across north/central/east/west/south markets, leading to pan-India average price decline of 5 per cent QoQ. However, if adjusted for ~2-3 per cent reduction in effective tax rate post GST, average trade prices in Q2FY18 is expected to fall 5 per cent /3 per cent /4 per cent /1 per cent /3 per cent QoQ across north/central/east/west/south markets, leading to pan India price fall by 2 per cent QoQ. Average NSR increased 7 per cent /1 per cent QoQ in Gujarat/ Tamil Nadu markets and it remained flat QoQ in the NE region.
Demand and pricing are expected to pick up in Q3FY18: Overall, dealers and marketing executives indicated that cement demand should recover post monsoon and as GST and RERA drag wanes off in the coming months. A good monsoon across most parts should also drive recovery in retail demand going forward.
Cement Dealers’ Feedback
Cement demand continued to moderate MoM through August, but there were signs of revival from mid-September. Sales were low due to heavy rainfall, issues with GST and RERA. However, sales have improved YoY basis mainly driven by increased project execution. Availability of sand improved across most regions in September. Dealers indicated that demand should improve going forward.
Average trade prices fell 2 per cent MoM in August and remained flat in September in the northern region to Rs301/bag. Dealers indicated that despite lower demand MoM during the monsoon, companies have been able to show supply discipline. Cement in non-trade segment in Rajasthan is selling at Rs60-70/bag discount to trade segment price. Prices have started recovering across Rajasthan and Punjab in September. Dealers expect prices to improve across all regions in October.
White Cement prices have been hiked in September.
Delhi: Dealers’ feedback: Demand continues to remain low in the NCR region. Prices fell in September but have recovered partly in October.
Faridabad: Dealers’ feedback: Demand has been good from the HB segment. Demand improved as the region witnessed moderate rainfall in September. Dealers are still having difficulties adjusting to GST. Prices have declined, but dealer expects current price to sustain.
Ludhiana: Dealers’ feedback: Demand has been stable this month as demand from the IHB segment saw a surge. Demand from private and government projects continue to be low. Prices have risen on better demand scenario.
Jaipur: Dealers’ feedback: Cement demand was good. Prices recovered at end of the month. No further price hike seen in October.
During August-September, cement demand weakened sequentially across all parts of Uttar Pradesh and Madhya Pradesh. Dealers in MP indicated heavy rainfall coupled with implementation of RERA has led to a slowdown in construction activity in the region. In UP, poor availability of sand coupled with higher sand prices continued to dampen demand. Heavy rainfall has also added to the woes. Dealers expect demand to improve in October on the back of good off take from government projects and better availability of sand.
Bhopal: Dealers’ feedback: Demand continues to be low due to low off take from private projects. Availability of sand has improved in September. Prices have been stable. Dealer expects current prices to sustain.
Lucknow: Dealers’ feedback: Demand has stabilised in September as the region witnessed moderate rainfall which did not impact construction work. Demand is mainly coming from government projects.
Varanasi: Dealers’ feedback: Demand has been low due to heavy rainfall and shortage of sand. Prices have declined due to poor demand. Companies have hiked prices by 10 Rs/bag in October.
Cement demand declined MoM during August and September across the eastern region. Dealers indicated that poor availability of sand and higher sand prices (mostly in Bihar), coupled with heavy rainfall and supply constraints contributed to subdued demand. Dealers expect overall demand scenario to improve in October on the back of pick-up in government projects’ execution and expected improvement in sand availability. Sales remained low in the north-eastern region due to floods.
Patna: Dealers’ feedback: Sand shortage continues. Companies are not cutting prices as there is no demand visibility.
Raipur: Dealers’ feedback: Demand has been low due to poor off take in government and private projects. Post GST, demand from private projects has dried up. Companies have hiked prices by 5-10 Rs/bag in October. Dealers have indicated that this price hike won’t be sustainable in the market.
Ranchi: Dealers’ feedback: Cement demand has been improving, driven by good uptick in government spending. Companies' retention increased due to change in billing.
Kolkata: Dealers’ feedback: Demand has been low as there is a shortage of workers due to the festive season which halted construction work. The region saw moderate rains in the month of September. Dealers expect demand to improve from October. Government housing projects are seen as the major driver of demand in the region.
Demand continued to decline MoM during August and September led by floods, issues with GST and poor real estate off take due to implementation of RERA. Dealers indicated that demand improved across Gujarat towards the second half of September. Strong demand from government projects has helped demand revival in Gujarat. In Maharashtra, demand has been low sequentially across most regions due to heavy rainfall and poor off take from private projects due to RERA. Dealers expect demand may remain subdued (sequentially) for the next few months.
Ahmedabad: Dealers’ feedback: Demand has been coming mainly from government projects. Demand from private projects has been poor. Prices have corrected due to volatility in demand.
Surat: Dealers’ feedback: Demand has stabilised as the region witnessed moderate rainfall and construction activities have been running smoothly. Demand is coming from a few major projects. Prices have come under pressure due to volatile demand. Dealer expects current prices to sustain.
Mumbai: Dealers’ feedback: Real estate market has been badly hit post RERA implementation. As Mumbai is mostly a non-trade market, this has led to a sharp fall in cement demand over the last 2-3 months. Prices have held on as companies are not aggressively pushing volumes.
Amid good rains across the region, sales moderated MoM during the past two months. Labour shortage also impacted construction activities during September. Sand shortage remains a big challenge in Tamil Nadu markets and even Vizag region witnessed sand shortage. In Karnataka too, sand availability has been poor and costly. Tamil Nadu and Kerala are also reeling under poor off take from government projects.
Hyderabad: Dealers’ feedback: Sales moderated on MoM basis due to the heavy rains and labour shortage during the festive season. Dealers and consumers are all facing GST challenges which is also dragging sales across the state. Even the real estate sector has not fully recovered from the demonetisation impact. The low cost housing project of the government is progressing well.
Bangalore: Dealers’ feedback: Cement demand has remained impacted due to RERA’s drag on real estate sector. Sand problem continues. No price hike is expected in October.
Thiruvananthapuram: Dealers’ feedback: Demand has been stable as government projects remain the major drivers of demand in the area.
Chennai: Dealers’ feedback: Demand has been low due to poor availability of sand and heavy rainfall. Dealers expect demand to improve from November onwards. Prices have dipped due to poor demand.
Source: Centrum Research