The coming monsoon, labour shortage and ambiguity around the goods
and services tax (GST) is poised to keep cement prices subdued in the
coming months, barring some upward movement in the west and east.
The coming monsoon, labour shortage and ambiguity around the goods
and services tax (GST) is poised to keep cement prices subdued in the
coming months, barring some upward movement in the west and east.
"The effect on prices will be multi-fold. With the monsoon, the
demand is likely to go down, which will pull down prices marginally.
And, the dealer network will take some time to adjust to the new tax
regime, which will affect volume," an analyst said.
They and a section of the industry expect average prices to remain muted and not fall beyond the March levels.
"Dealers in east India and the Andhra-Telangana region report
pressure on cement companies from government agencies to cut prices for
supplies to government projects. Some also indicated that ahead of GST
implementation, dealers would go light on inventory in June, impacting
sales," said Rajesh Kumar Ravi, research analyst with Centrum Broking.
According to Centrum, average pan-India trade prices rose seven per
cent to Rs 340 a bag in April (month-on-month), led by a large price
rebound in the north, east and west regions.
"Overall, dealers indicated supply discipline was the key reason for
the sharp price increase in March and April across all markets.
However, the spurt has started to impact sales offtake since late
April," Ravi added.
Sector officials say demand started tapering in May as compared to
last month, primarily on account of higher prices of cement and sand,
and labour shortage in many places.
A section also think the monsoon would buffer the GST impact.
"Demand is anyway going to be slow in the monsoon and GST is going to be
implemented around this time. Thus, the timing of GST has provided a
blanket," said Vivek Chawla, chief executive at Emami Cement.
Sushil Mohta, managing director of Merlin Group, a real estate
major, said the net impact of the 28 per cent (highest category) GST
rate for cement would vary with realty pricing, in turn impacting the
demand for cement.
For properties at Rs 4,000-5,000 a sq ft, the new tax regime would
be neutral. However, realty prices would increase by around Rs 500 a sq
ft for properties priced at Rs 10,000 a sq ft. For property priced at Rs
20,000 a sq ft, prices will go up by Rs 1,500 a sq ft.
"However, post monsoon, the affordable housing segment and the
government’s push for infrastructure development will drive cement
sales," said Mohta.
It is estimated that around two million houses are constructed
yearly in the country. While cement comprises 15-20 per cent of the
overall cost for an apartment; it is about a third for individual
houses.