BackCement demand improves, but cost inflation continues to pinch
Although cement makers are trying to partially offset the impact of cost inflation by reducing discounts, the delay in undertaking price hikes points to operating margin erosion for the sector
PremiumMUMBAI: An analysis of data on cement volumes, transported through railways, shows that the strong demand momentum continued in February, domestic brokerage house JM Financial Institutional Securities Ltd said in a recent report.
Month-on-month, volumes transported through railways grew 9% in the first half of February, while on a year-on-year basis, they rose over 20%. For the first half of January-March quarter, cement volumes have increased 16% y-o-y, said the JM Financial report.
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Analysts say a low base of March last year, when operations were hit by the pandemic, is likely to drive growth in Q4.
While demand is recovering, cost inflation continues to be a pain point for cement manufacturers. Prices of petroleum coke, diesel and coal have been heading north. Cement makers, however, are yet to pass on the burden of rising costs to consumers.
Dealers channel checks by various brokerages have shown that cement prices remained stable in early February.
According to Nirmal Bang Securities Ltd, in the first fortnight of February cement prices were stable across regions, with minor changes in various cities. However, the expected cost inflation has not been passed on to consumers, said the domestic brokerage house in a report.
"Based on our channel checks, cement price on a pan-India level has marginally declined by 0.2% month-on-month to Rs332/bag primarily due to ~1% month-on-month decline observed in North and Central regions, partially offset by a marginal increase of ~0.1-0.4% month-on-month in West, East and South regions. When compared to average price in 3QFY21, the pan-India price has declined by 2% due to a 0.8-3.5% decline in all markets and the maximum decline of 3.5% observed in East and South markets," added the Nirmal Bang report. One cement bag weighs 50 kilograms.
Although cement makers are trying to partially offset the impact of the cost inflation by reducing discounts, the delay in taking price hikes points to operating margin erosion for the sector.
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