Cement prices rise again, but will they sustain this time?
In a bid to offset continuously rising cost pressures, cement companies in north and central India have finally resorted to price hikes.
After declining for six months in a row, all-India cement prices increased by Rs4/bag on a month-on-month basis to Rs323/bag in December, showed a recent dealer channel check report by Kotak Institutional Equities. One cement bag weighs 50kg. However, prices still remain below the peak of Rs349/bag seen in May this year (see chart 1).
The surge was largely led by the north and central markets where cement prices spiked by Rs16/bag and by Rs6/bag month-on-month, respectively. Cement companies having exposure to these regions would be most impacted by the recent ban on petroleum coke (petcoke) usage in the states of Rajasthan, Uttar Pradesh and Haryana.
Following the Supreme Court’s order, cement plants located in these states are now switching back to coal to meet their fuel requirements. As with petcoke, prices of imported coal too have escalated in the past few months, providing no relief to cement makers on the input cost front.
City-wise, Delhi witnessed the highest monthly price increase of Rs25/bag followed by Haryana (up Rs20/bag month-on-month), while Punjab and Rajasthan saw an increase of Rs13/bag month-on-month, said the report.
While there has not been much movement in cement prices in other regions of the country, one should not be surprised if other cement producers raise prices next month. “In case the ban on petcoke usage is extended to more states, then other cement makers may follow suit and increase prices. Even otherwise, costs have remained on the higher side for cement manufacturers and fourth quarter being a seasonally strong one historically, cement companies do raise prices in this span. So, one cannot rule out the possibility of another round of price hikes in January,” said Murtuza Arsiwalla, senior analyst at Kotak Institutional Equities.
As for cement demand, offtake continued to remain weak in the first half of the fiscal year, marred by factors including slowdown in real estate activity and sand shortages. According to Icra Ltd, during the first seven months of FY18, cement production declined 1.6% to 165.6 million tonnes (mt) compared to 168.3mt during the same period last year. Quarter-wise, cement production fell 0.4% in Q2 FY18 on a year-on-year basis (see chart 2).
The rating agency foresees a modest improvement in cement demand for the rest of FY18.
After a decent start to the fiscal year, cement prices failed to sustain at higher levels in the wake of weak demand, so the question remains if this time will be any different.