End of sunny days for cement, steel firms

Cement and steel companies seem to have faced demand resistance in the first half of 2008-09, with prices increasing lower than production, and both recording marked slowdown compared to a year ago.

This is in sharp contrast to the extremely good market conditions these companies enjoyed for past two fiscals or so. Thus, while the finished steel production growth slowed to 5.3 per cent from7.7 per cent in H1 of the preceding fiscal, price realisation as measured by WPI of iron and steel was up by 1.1 per cent as on October 25, around one-fifth the pace a year ago.

This is in sharp contrast to the H1 of 2007-08 when prices outpaced production growth. Likewise, in cement also, the average rise in production dropped from 8.7 per cent to 6 per cent, the price realisation by October 25 was only 1.8 per cent higher, less than a half of 4.3 per cent a year ago.

After a record escalation over March-mid April, iron and steel prices have softened significantly, particularly in the last two months when price rise in the current year fell from 2.9 per cent till August to 1.1 per cent by October 25. In response to the slack demand, finished steel (carbon) production was up 5.8 per cent in September, showing steep drop from 9.5 per cent in this month in 2007. Similarly, the annual escalation in WPI of cement—ruling at double digit till February last—lost steam with the annual rise dropping to 2.4 per cent by September, one-fifth the increase a year ago.
 
While the losses in stock prices have been phenomenal in recent weeks, metals, cement and realty scrips have been mauled further due to fund flow crisis in construction and realty companies. This in turn has created a gloomy outlook for sectors supplying material in-puts to construction industry. 


 

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