Cement: Strong demand, but accelerated capacity addition can weaken prices

Indian cement companies have been reporting strong volume sales for the past few months. The additional capacity that has come on stream has enabled most of the cement manufacturers to increase the total cement production. Various measures introduced in the budget to stimulate rural growth in infrastructure and an increased allocation in various infrastructure projects is expected to sustain the demand. Cement prices rose across India in Feb 2010 post Union Budget, due to higher excise duty, increase in freight costs and on the back of a shortage in the availability of rail wagons. We expect prices to remain firm on account of the demand arising from the Commonwealth Games, infrastructure spending and recovery in urban housing segment . However, the rise in prices is expected to be a short-term trend, as the new capacity addition over the last few months is expected to exert pressure, going ahead. We believe that north-based players will do well as compared to south-based players, on account of relatively balanced demand-supply dynamics.

By, Mr. Rupesh Sankhe,Sr. Analyst-Power & Cement, Angel Broking