Shares of cement companies rallied on Tuesday on hopes of improved quarterly results.

Pivotals like ACC (up 2.75 per cent to Rs 158.90), Grasim Industries (up 2.49 per cent to Rs 315.15), Gujarat Ambuja Cements (up 2.13 per cent to Rs 167.50) and Larsen & Toubro (up 1.29 per cent to Rs 165) ruled firm in late afternoon trades on the BSE.

Meanwhile, the BSE Sensex stood at 3,335.74, up 8.58 points at 15:25 IST.

Dealers said the rise in cement scrips was purely on expectations that cement companies may register good results for the quarter ended December 2002 due to the rise in cement prices during the said quarter.

However, cement analysts feel the rise in cement scrips was led by speculators and that cement manufacturers are expected to register poor results, compared to the previous year. But their performance is likely to be better than the July-September 2002 quarter.

On Monday, there were reports that cement prices have slipped in Mumbai by Rs 5-10 and in north India by Rs 5-7 for a 50-kg bag.

Earlier, there were reports that the Golden Quadrilateral project has caught up pace in the southern region.

As a result, the demand for cement in the region may increase, which is witnessing an oversupply position at the moment.

The demand for cement is also expected to witness a rise due to the Rs 54,000-crore National Highway Development project. There were also reports that the government has set a target of building 200 kilometres of roads per day under the Pradhan Mantri Gram Sadak Yojana.

Cement analysts said that although the demand for cement is expected to rise following a slew of infrastructure projects, till cement production is curtailed and prices move north, the profitability of companies in the sector may not increase.

Analysts said the profitability of cement makers is directly dependent on a rise in realisations. As a consequence, firm cement prices are vital for the industry.

They said that for cement prices to remain at high levels, reduction in cement production was necessary. Analysts said that for another two to three quarters, cement companies are not expected to post any surprises.

The cement supply overhang is expected to continue. In this month, Sanghi Industries was expected to commence its production, but the company has postponed it till March this year. If Sanghi Industries commences its production, the cement sector will witness a huge supply for another three quarters.