Cement shares have staged a recovery on the bourses on rumours that cement prices have been hiked of late.
Sector leaders Gujarat Ambuja Cements (up 1.8% to Rs 157.75), Grasim Industries (up 1.5% to Rs 345.40), ACC (up 0.78% to Rs 154.55) and L&T (up 0.5% to Rs 195.20), all moved upstream.
There has been quite a recovery on the bourses for cement pivotals over the last few trading sessions. The combined market cap of 14 north India based cement companies grew 2% to Rs 6095.59 crore (Rs 60.95 billion) last week . However, their market cap over the past month registered a 1.6% fall.
Rumous that cement prices have been hiked by key players may be pushing up cement stocks, but cement analysts feel these cement prices could hardly hold ground what with the budget just round the corner. On the contrary, prices are reported to have eased in north India.
The cement sector is witnessing difficult times as a supply overhang puts pressure on cement prices. "The cement industry is still not out of woods," says a cement analyst with a local brokerage. Besides, fiscal year end dumping is a normal process in the industry in order to boost annual sales. This should keep prices in check.
Cement demand has been robust, but prices have been under pressure. In the current financial year ending 31 March 2003, cement demand is expected to increase by a healthy 9.5%. Demand growth is expected to be the highest in the South (about 15%), followed by the North (9%), the West (6%) and the East (4%). Demand continues to be driven by the Golden Quadrilateral road project and the sustained growth in housing construction activity.
For the period April-January 2003, cement shipments rose by 9.3% to 91 million tonnes from 83.2 million tonnes. Production increased to 91.2 million tonnes (83.2m tonnes). The strong performance was due to the incremental demand from the road sector and a demand pick-up in south India, especially from states like Tamil Nadu and Karnataka.
Analysts fear a hike in Railway freight (by about 4-5%) in the Railway Budget will lead to increase in costs for the cement sector. Whether manufactures will eventually be able to pass on that hike to consumers is still uncertain. As it is, the cement industry has demanded a sharp reduction in Railway freight to compensate for an increase in cess on petrol and diesel.
The cement industry has asked for some sops for the industry in the Union Budget. The industry has proposed a rollback of increase in royalty on limestone. The royalty rate on limestone was increased by 25% to Rs 40 per toone. The industry has also proposed reduction in customs duty on non-cooking coal from 25% to 5%. Gujarat Ambuja Cements which imports a substantial amount of cooking coal will benefit from any reduction in import duty on non-cooking coal.
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