Cement demand, a key indicator of economic activity is showing signs of weakness. Sales of the building commodity are likely to decline by 7% to 8% in May due to lower capacity utilisation, power and wagons shortage, say sectoral analysts and industry experts.

Sales of cement in the country, the world’s second fastest growing market after China, are expected to be around 17 million tonnes for May compared to April when industry sold 18.3 million tonnes. It will be slightly higher than 16.4 million tonnes in a year ago. Sales stood at 19.1 million tonnes in March 2010.

Mr Rupesh Sankhe cement analyst of Angel Securities said that “Our estimates show that May sales will be 7% to 8% lesser compared to April despite Commonwealth Games-related off-take.”

Mr Nitin Gupta Partner of E&Y said that the demand would pick up in the coming months due to long term infrastructure developments.

Analysts said there would be single digit growth in annual demand. The industry is growing at 9% to 11% for the past few years. China, the world’s largest market, is growing at 14%.

The profit margins of the cement companies are under pressure on the back of rising coal, freight costs and excess capacity.

The cement industry’s capacity, which grew by 12.4% to 240 million at the end of March 2010, is likely to go up to 300 million tonnes by December 2010.

Ms Priti Agarwal Care Ratings DGM said that “The trend of sustained high profitability will come across a speed breaker on account of the higher input cost and lower demand, amid excess capacity scenario. However, the situation is expected to change gradually from second half of FY-2011 pursuant to likely easing of supply glut following the buoyant demand in Northern, Central and Eastern markets.”

(Sourced from ET)