Amid seasonal weakness, cement prices remain firm in central zone
PremiumAt an all-India level, cement prices fell 4% on a month-on-month basis from ₹369 per bag in July to ₹356 in August
The September quarter is a seasonally weak one for Indian cement manufacturers. With the onset of monsoon, cement demand usually takes a back seat on advancement of construction activities, leading to a correction in prices.
At an all-India level, cement prices fell 4% on a month-on-month (m-o-m) basis from ₹369 per bag in July to ₹356 in August, showed the latest dealer channel checks by Kotak Institutional Equities. A cement bag weighs 50 kilograms. In spite of this seasonality factor, central India was the least hit with a minimum price correction of ₹3 a bag in August compared to the last month.
Considering that other regions have seen price declines as steep as ₹30 a bag in August, central India seems to be in good stead.
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“Dealers in large states like Madhya Pradesh and Uttar Pradesh report a strong pick-up in trade sales in August after a weak July 2021 led by the monsoon. Dealer feedback for central also suggests improved rural demand, higher individual home building demand from incomplete projects and revival of infrastructure demand with the restart of government projects," Kotak Institutional Equities said in a report.
According to analysts, buoyed by these factors, central India has outperformed other regions in terms of demand growth in recent months. This was also the reason why cement prices in this market largely remained rangebound. Going ahead, dealers expect an improvement in prices by ₹5-10 per bag if the current demand sustains.
Simply put, this bodes well for volumes and realizations growth of cement manufacturers having exposure to this region. On the other hand, south India saw cement prices fall by 7% in August. Analysts said all the price hikes taken from June have been reversed. Cement prices in north and east also witnessed a 3% m-o-m decline, each, in August. Prices in west India were hit by heavy rainfall. It should be noted that cement prices were raised across India in the previous months to combat input cost inflation.
However, as cautioned by many cement sector analysts, prices have been rolled back as demand improvement is not meaningful enough to absorb elevated prices. Another important variable for the sector is the movement in prices of key input material. Cement makers continue to battle with higher energy and freight costs. So far in FY22, petroleum coke prices have risen 40% to around $160 a tonne. International coal prices have also increased by a similar quantum in FY22.
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Higher realizations due to price hikes saved the day for their operating performances in spite of surging raw material costs in the June quarter. Also, the advantage of low-cost inventory has now waned for most cement producers. In this backdrop, a further decline in cement prices at the all-India level would translate into lower margins for cement makers in the coming quarters.
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