Cement prices to fall more on weak govt, rural demand: JPM

[bhushan sharma]

Brokerage firm JPMorgan has reported a decline in cement prices across the country. This weak demand, according to the firm, is due to the government's lack of spending and an absence of rural demand.

"As a result cement, prices have corrected further in most markets with prices down further 3- 6% across many markets in April," the report says.

Price Trend

According to the report, the sharpest decline has been noticed in Western India, where the demand has also been impacted by the drought. Demand has been affected in Southern India too and is driven by sharply lower prices in Andhra Pradesh. The cost correction in AP is striking as prices are down below Rs 200/bag due to aggressive selling strategies by cement companies says the report.

Also read: JP Associates plans to sell cement units, shares up 2%

Demand Scenario

According to the report, despite a weak economy, cement demand has managed to hold well in the past few years. The report suggests once the government starts its election led spending, demand may see an uptick. But that is not going to revive the sector. If the rural demand doesn't improve, it could take away some of the Government led incremental demand.

"We would watch the rural demand/spending trends very closely as any further deterioration there could likely limit overall cement demand recovery. The other issue is the drop in cement prices in the interim. Cost trends continue to inch up especially in energy (diesel) and with lower aggregate demand, there is less supply discipline and hence more price competition," .