India’s cement industry is staring at an unusual supply disruption—not of limestone or coal, but of the humble cement bag.
As the war in West Asia ripples through petrochemical supply chains, polypropylene (PP), the key raw material used to manufacture cement packaging bags, is turning scarce.
The crunch is pushing up costs, squeezing MSME bag makers, and adding fresh margin pressure on cement companies already grappling with higher fuel expenses.
According to industry estimates, the cost of a single cement packaging bag which was ₹6–7 until recently, has now climbed to ₹11–12 due to a PP shortage.
Due to the shortage, per tonne cost of cement will increase by roughly ₹60–80, considering 20 bags of 50 kg each per tonne, said Sourav Mitra, partner, Oil and Gas, Grant Thornton Bharat.
Polypropylene pinch
At the heart of the issue is polypropylene (PP), used to produce woven cement bags. Refineries in the Gulf region are increasingly diverting feedstock such as propane and butane toward liquefied petroleum gas (LPG) production amid supply uncertainties, tightening PP availability.
Bag manufacturers are currently receiving only about 60–70% of their contracted PP chip supplies, according to a Motilal Oswal report dated 18 March. Raw material costs have surged nearly 70% in the past two months.
Government-led diversion of propane and butane toward LPG is expected to further constrain PP output and, in turn, bag production, said Mitra. Consequently, PP cement bags are likely to witness cost escalation of 30–40% per bag, according to Grant Thornton Bharat and Motilal Oswal estimates.
At least one large cement maker said the shortage is already visible.
"We are seeing some tightness in the availability of cement packaging bags, largely driven by shifts in polypropylene (PP) supply and increased demand from other sectors. This has had a cost impact of approximately ₹100 per MT,” said Neeraj Akhoury, managing director, Shree Cement Limited in an email.
Akhoury clarified that operationally the situation remains under control.
“At this stage, alternative packaging options such as jute and paper are not commercially or operationally viable at scale. We remain focused on ensuring consistency in operations while closely monitoring the evolving supply environment,” Akhoury said.
No easy substitute
According to Grant Thornton Bharat’s Mitra, there is no perfect substitute for retail packaging. The closest alternative is HDPE-coated woven bags, but these too are polymer-dependent.
An executive of the Indian Federation of Woven Technical Textiles (IFTEX), requesting anonymity, explained the structural gap:
“There is clearly a shortage of polypropylene used for cement bags in India. India produces about 7,125 KT of polypropylene annually, of which roughly 33% or around 2,351 KT is Raffia grade used primarily in the manufacture of woven sacks and packaging materials such as cement bags. However, domestic consumption of Raffia grade polypropylene stands higher at approximately 2,436 KT, resulting in a supply shortfall of nearly 85 KT."
"The gap is typically met through imports from the Gulf and China, which have slowed significantly. At the same time, feedstock is being diverted towards LPG production, reducing polypropylene output. As a result, raw material availability has tightened, forcing many MSME bag manufacturers, who account for nearly 80% of production, to scale down or shut operations,” he added.
For cement companies, which typically maintain just 7–10 days of bag inventory at plant level, according to Motilal Oswal, any prolonged disruption could affect dispatches, particularly in the retail segment where cement is sold in bags rather than bulk.
Margin squeeze
The packaging crunch comes at a time when cement makers are already facing higher input costs due to the West Asia conflict. Escalating crude oil prices have pushed up the cost of petcoke and coal, key kiln fuels, while freight and logistics expenses have also climbed.
According to analysts, fuel costs could rise by ₹160–200 per tonne in the June quarter compared with the December quarter, adding to margin pressures. Higher packaging costs alone could have an incremental impact of ₹70–80 per tonne, further squeezing profitability.
“Tight availability of plastic packaging bags and increase in polypropylene prices (key raw material for bags), resulting in an additional cost pressure of ~ ₹80/t in 1QFY27E,” according to the March Dam Capital report.
In the near term, companies may attempt to pass on some of the burden.
“We estimate that the industry may require a price increase of ~INR10-15/bag (net of GST) to offset the impact of elevated spot fuel prices and packaging costs,” analysts at Motilal Oswal wrote.
Ultimately, the margin impact will depend on pricing power.
Any impact on margins will depend on how much costs cement players are able to pass on to consumers, said Grant Thornton Bharat’s Mitra.