Cement production would have shrunk in the March quarter primarily due to the base effect coupled with the note-ban-induced cash crunch and polls in many states during the period, says a report. “The lagged impact of cash crunch and state polls will take a toll on cement production in Q4. Latest data showed cement volumes in February 2017 declined the most in over a decade by 15.8 per cent y-o-y. Volumes also declined by 5 per cent on (a) month-on-month basis,” says an India Ratings report.
The report notes the decline in cement production growth is also on account of a high base last year, as in the March 2016, quarter production grew by 9.2, 13.5 and 11.9 per cent respectively.
On the prices front, the wholesale price index of grey cement and slag cement has shown a softening trend through November 2016-January 2017. Cement players got some respite on the cost front, with pet coke and coal prices showing moderation in January and February 2017, after pet coke prices almost doubled since March 2016, the report said.
Volumes of national players in Q3 contracted by 5 per cent y-o-y; while for central and north-based players fell by 3 per cent and 6 per cent respectively. The southern region, in contrast, showed strong volume growth of 21 per cent. Growth in the southern region is led by an increase in government expenditure in Andhra Pradesh and Telangana.
On the policy front, due to the recent measures announced by the Railways Ministry that require long term agreements/contracts for industries like cement, steel and fertilisers, cement companies may see improvement in demand.
As per the policy, the Ministry will provide a minimum guaranteed volume linked discount, on the basis of incremental growth in gross freight revenue, in return for a commitment to provide a minimum guaranteed quantity of traffic. The discounts will range from 1.5 to 35 per cent, as per the incremental growth in gross freight revenue.
The agency believes these initiatives will increase transport of cement through rail and manufacturers will be able to control freight cost more effectively.