Cement stocks were the subject of renewed buying on Thursday on reports that cement dispatches have risen 9.8% in January 2003.

Larsen & Toubro made the biggest spurt among cement pivotals, rising 1.89% to Rs 191. Others like ACC (up 1.28% to Rs 146.55), Grasim Industries (up 0.15% to Rs 335.10) and Gujarat Ambuja (up 0.13% to Rs 159.90) also moved upstream.

Cement scrips have been prodded higher by upbeat cement deliveries in January 2003, up 9.8% to 9.63 million tonnes . For the period April-January 2003, industry shipments rose 9.3% to 91 million tonnes from 83.2 million tonnes. Production increased to 91.2 million tonnes (83.2m tonnes). The strong performance is due to the incremental demand from the road sector and a demand pick-up in south India, especially Tamil Nadu and Karnataka.

Analysts are sceptical about a sustained rise in share prices from here on, though, as cement prices continue to be weak. A rise in supply is not necessarily considered an advantage. In fact, cement prices have dropped in the third week of January 2003 by Rs 11-12 to Rs 148-150 per bag of cement.

Declining cement prices will put further pressure on the bottom line of cement companies . In any case, demand for cement is expected to rise due to the building boom. However, analysts feel cement production must be curbed to prop up prices and secure greater profitability.

The cement supply overhang is expected to continue. The current month would have seen Sanghi Industries' plant commencing commercial production, but for the fact that it has been postponed to March 2003. If Sanghi Industries starts production, the supply overhang situation will worsen, which will pull down cement prices.

In the last one month, the cement sector, comprising 24 companies, lost 2.83% to Rs 14,719.79 crore (Rs 147.19 billion) from Rs 15,149.39 crore (Rs 151.49 billion) in m-cap following dismal performance by cement companies largely out of the poor realisations.