Why cement prices will remain flat. 3 reasons

Sector analysts opined that the northern, central and eastern markets were particularly hit

The Goods and Services Tax (GST) and Real Estate (Regulation and Development) Act, 2016 (Rera) implementation, together with good monsoons, cooled off cement prices across the country by 2-3 per cent on an average in the immediate months of the new tax regime.

It is expected that prices will continue to remain low during the second quarter until the bulk of cement dealers move over to the new tax framework.

Sector analysts opined that the northern, central and eastern markets were particularly hit as most of the dealer base resorted to destocking in June in anticipation of GST and the pace of restocking is not satisfactory.

Moreover, dealers, particularly in the tier 2-3 markets are still sceptical of the input tax credit affecting volume uptake.

"It is expected that prices will continue to remain subdued in the second quarter as dealers, mostly in the northern-eastern markets are yet to understand the GST implications and how to claim input tax credit," an analyst with brokerage firm Motilal Oswal said.

Based on cement channel checks, analysts are projecting that in the August-September period, prices are poised to be hit by 2-5 per cent across the five regions.

Rera Act as well as GST requires tighter compliance norms which has affected construction activities by large real estate companies, which slowed down in the July-August period.

Cement prices have been showing a declining trend since the beginning of the current financial year after the average prices peaked during April at Rs 307 a bag, rising by over four per cent, but then began to decline steadily, falling by 3.5 per cent in June i.e. the month just before the GST implementation.

However, prices dropped by six per cent at Rs 289 a bag during July-August as compared to the April prices.

"Demand and cement supply has been sluggish post-GST implementation and the channel network suggests that sluggishness may continue for one to two more months.

Sustained sand shortage and Rera implementation will continue to impact sales," an analyst with Centrum Broking opined.

As per the analyst, owing to weak demand, primarily from the channel partners, average trade segment prices (pan India) fell three per cent on a month-on-month basis and trade prices corrected by two per cent in the north and southern region, three per cent each in central and eastern region and by four per cent in the western belt.

He said the price correction in the west has been sharper as prices rose in Pune belt last month against the national price decline implying a higher base correction for the region.

"Overall, dealers are indicating that the steady progress of the monsoon and the impact of GST as well as RERA would further moderate cement offtake.

However, marketing executives remain upbeat that a good monsoon would lead to better cement offtake during the second half of the current fiscal year," the analyst said.

Apart from GST, Rera and good monsoon, the impact of sand mining also pulled down cement prices particularity in Uttar Pradesh, Madhya Pradesh and Tamil Nadu region.

However, cement company executives are hopeful that the sand shortage owing to several bans by the National Green Tribunal (NGT) will get sorted out by substituting artificial sand in the near future.

"Eventually, M-Sand will become an organised sector and the government is expected to sort out the sand shortage issue in due course," Vivek Chawla, CEO at Emami Cement said.

M-Sand is a substitute for naturally occurring sand used in construction activities and is produced from hard granite stone by crushing.

Photograph: Jayanta Dey/Reuters