Cement demand to rise 6 per cent in FY17 on infra push, rains: Icra
Cement demand is likely to increase 6 per cent this fiscal from 5 per cent in 2015-16 on the back of better monsoons and government focus on developing infrastructure, rating agency Icra
"Cement demand growth, which was relatively muted at 5 per cent in fiscal 2015-16 and 3.4 per cent in April-May 2016, is expected to be 6 per cent this fiscal on the back of better monsoons and a pick-up in the infrastructure segment," Icra Ratings Senior Vice-President Sabyasachi Majumdar said.
The expansion is also likely to lead to better prices, especially in the northern and eastern states, which are seeing a good off take of the key building material, he said.
"The pick-up in the infrastructure segment will be primarily in sectors like roads and housing during the next one year. This apart, there is a likelihood of a recovery in the rural demand from the second half of fiscal 2016-17, given the expectations of a better monsoon.
"With the pace of new capacity addition slowing down, we expect capacity utilization and the supply-demand scenario to show an improvement, especially in fiscal 2017-18, which should support cement prices and profitability indicators for cement manufacturers," Majumdar said.
According Icra, demand growth during April-May 2016 at 3.4 per cent was substantially lower than 9-13.5 per cent reported during January-March 2016.
"The April-May decline in demand growth was primarily due to the continued weak rural demand (especially in Maharashtra, which was impacted by a drought in calendar year 2015) and a slowdown in the pace of infra execution, partly due to the unavailability of water," Majumdar said.
Demand in south India also moderated during April-May 2016 when compared to fourth quarter of 2015-16. However, demand in north and east India picked up on the back of higher infrastructure and housing demand, the rating outfit said.
In the north, a demand uptick and better pricing discipline resulted in the rebound of cement prices to Rs 305- 335 per bag (50kg) in April-June 2016 from a low of Rs 225-240 per bag in the first three months of 2016.
In the west, cement prices stayed subdued during first quarter of this fiscal, in the range of Rs 260-265 per bag.
In the east, April-June prices stood at around Rs 315 per bag.
"Improvement in the capacity utilisation in the north, west and east is likely to support the cement prices in these regions in the near term," Majumdar added.