Southern market pulls cement prices up by 3% in Sept despite dismal demand

Cement prices increased by 3.2 per cent in the last week of September on a year-on-year (YoY) basis mainly due to realisation recovery in the key Southern region even though the prices remained flat on a sequential basis. While average Southern prices improved by by 1.9 per cent YoY and 4.8 per cent MoM, average prices in other regions contracted by around 1-3 per cent MoM during the period under consideration, as per reports.

All-India average cement price remained at Rs 305-310 a bag (50 kg), up by around 3.2 per cent YoY and -0.3 per cent MoM.

While all-India average cement prices in the trade segment remained broadly resilient in September 2019, demand momentum continued to remain dismal as extended monsoon and persistent slowdown in governments spending impacted the demand. However, as per dealers, September 2019 witnessed a steeper price cut in non-trade segment, as demand dry-up in the trade segment led the companies to push more volume in non-trade segment.

Naveen Kulkarni, Head of Research, Reliance Securities said average increase was mainly due to realisation recovery in the Southern region, which was mainly led by sharp price recovery in Andhra Pradesh and Telangana despite soft demand. Average prices in other regions contracted by around 1-3 per cent on MoM basis. However, the month witnessed a steeper price contraction in non-trade segment, as demand from trade segment was impacted severely due to extended monsoon. Therefore, price gap between trade and non-trade segments widened further to Rs50-70 a bag.

"Most dealers said that sales volume was badly impacted in September 2019 and is meaningfully lower compared to September 2018, as lack of demand from government-sponsored infrastructure and housing projects has been the key factor for demand slowdown. Notably, with the likely pick-up in trade demand from October 2019, the dealers expect competitive intensity in non-trade segment to recede and the pricing momentum to remain benign hereon," Kulkarni said.

Central and Eastern markets are likely to witness faster demand recovery led by higher proportion of trade demand and higher allocation (around 42 per cent) of housing units under Pradhan Mantri Awas Yojana (PMAY), center's affordable housing project which targets to provide houses to the urban poor with a target of building 20 million affordable houses by 2022.

Overall, in the second quarter, cement price in the northern region remained the most resilient with around 11.8 per cent YoY growth and 3.2 per cent QoQ decline at Rs 305-310 a bag, followed by Central region (+4.9 per cent YoY and -2.6 per cent QoQ), and Western region (+3.2 per cent YoY and -7.5 per cent QoQ). However, average prices in East (-1.6 per cent YoY and -6.5 per cent QoQ) and South (+0.2 per cent YoY and -9.6 per cent QoQ) remained subdued. The sequential price contraction is likely to have been impacted by steep price contraction in the non-trade segment.

However, increased spending on infrastructure projects by the Centre and acceleration in infrastructure projects and development schemes by the new government in Andhra Pradesh should spur demand further in South, says industry representatives in South.

"Now that the monsoon is getting over, and the new Andhra Pradesh Government and the government at the Centre are expected to kickstart development schemes, demand is expected to increase, which will lead to better prices," said a CEO of a cement company in South, adding that he is 'cautiously optimistic’ on the outlook for the industry in the current year.

Cement firms use waste in fuel mix as they look to rejig their sourcing

The fuel mix of cement manufacturers is going through a churn. The last decade saw cement companies partially substitute coal with pet coke.

However, the fuel mix now includes plastics and tyres, as companies look to rejig their sourcing.

“Our fuel mix currently comprises alternative fuels at 7 per cent. According to Geocycle (a waste management solution), the estimated amount in the long-term will be 13 per cent,” an official from Ambuja Cements had said last month.

The company has adopted Geocycle as a co-processing technique for industrial and other wastes at its kilns.

Co-processing refers to the use of waste materials in industrial processes as alternative fuel or raw material. Due to the high temperature in the cement kiln, different types of wastes can be effectively disposed of without harmful emissions, according to the Central Pollution Control Board.

Others like UltraTech, Nirma’s Nuvoco, JK Lakshmi and Madras Cement, are among companies which are burning waste ranging from tyre chips, rubber dust to rice husk and cashew nut shells in their kilns to generate heat.

At Dalmia Cement’s Responsible Industrialisation initiative, 18.9 tonnes of plastic waste was collected from residential areas, the plant and neighbouring villages and used in the kiln to save a good 56 million kilo calories of energy.

For the country’s largest cement maker UltraTech, alternative fuels contribute three per cent to the total fuel mix. In an investor presentation in February, the company said it is targeting 10 per cent contribution from alternative fuels by the end of the current financial year.

Cement manufacturers are also witnessing a cost benefit from alternative fuels. In its March quarter presentation, UltraTech said increased usage of industrial waste as a fuel has contributed to cost savings.

According to an India Brand Equity Foundation report, use of bio energy through the burning of coffee husk and cashew nut shells at Madras Cement’s Alathiyur plant has led to an annual cost savings of $1.7 million.

Most of the waste collection so far has been through arrangements with municipal authorities. However, companies like JK Lakshmi are also experimenting to further expand into waste collection. A rejig of fuel mix is under way for JK Lakhsmi where the company looks to increase its share of alternative fuels.

According to sources, it looks to formalise the supply of waste materials through community collection, including plastics, to be used as fuel in its kilns.

Companies like Shree Cements have also extended the fuel mix to sources like automobile sludge, waste water with high ammonia levels as well as medical waste. “Alternative fuel now contributes four to five per cent to our total fuel mix,” said HM Bangur, managing director of Shree Cements.

Anumita Roy Chowdhury, executive director at Centre for Science and Environment or CSE, said, “To ensure such processes do not cause environmental hazards, there is a need for stringent monitoring of stack and process emissions as well as profiling of emissions.”

She added, “Cement companies will have to invest in effective emission control systems to stay within the permissible limit and reduce toxic emissions. Adequacy of emission standards will have to be reviewed from time to time.”