Cement: Sell now, buy later

Mumbai : Ambuja Cements Ltd,ACC Ltd:Static prices and cost push may halve the industry’s margin to 10% in 2012-13. The pressures on the cement industry — be it rising raw material costs or sluggish demand — have been discussed ad nauseam. Given that raw material pressures are not likely to abate soon, the only ray of hope is an uptick in volumes, which, the industry expects to happen by the second half of this financial year. This, they hope, will drive capacity utilisation (which has expanded substantially over the last couple of years). A pick-up in demand would have an impact on pricing as well as realisations. However, a section of analysts believes meaningful recovery in volumes and pricing growth are at least 12-18 months away.

According to Crisil Research, a huge demand-supply imbalance, fuelled by a supply glut, will pull cement profitability downwards. The supply glut will slacken the operating rates of cement manufacturers, restricting their ability to pass on a sharp rise in power and fuel costs to consumers.

Over the next two years, while cement capacities will rise by 60 million tonnes per annum (mtpa), demand will increase by a mere 30 mtpa. Operating rates of cement manufacturers will, therefore, plunge to around 72 per cent in 2012-13 from an already subdued 78 per cent in 2010-11.