By Rajesh Kurup
The deepening Russia-Ukraine conflict, which pushed global crude oil past the $100-mark on Thursday, would impact Indian cement manufacturers’ margins as production costs escalate.
The global prices of Brent rose as much as 8.21% on Thursday, its biggest single-day surge since June 2020. Currently Brent prices are hovering at $104.80 per barrel. “The sharp rise in costs has led to margin erosion. In fact, power and fuel costs are likely to rise by 35-40% in the current year, while freight cost is set to rise by another 5-10%. Raw material prices, which account for close to 15-17% of total costs, are also set to rise led by rising mining costs,” Crisil research director Hetal Gandhi said.
“Cement prices are likely to rise to offset rising input costs but any major uptick will be limited by the recent spree in capacity additions, especially in east and central regions. The price rise is unlikely to compensate for the rise in input costs, thus leading to margin erosion for the players. Despite the fall in margins, the overall Ebitda margins for the industry will stay in the range of 20-22% in FY22 and FY23, above the average levels of the last decade of 17-20%,” he added.
During the first nine months of the financial year, cement prices in India rose by 3-3.5%, hit mainly by spiralling energy prices. Industry experts fear the overall costs for cement-makers, led mainly by rising crude prices, would further soar by 11-12% this fiscal.
