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Cement companies are seen exiting the March quarter (Q4FY22) with flat prices, despite Q4 being seasonally strong. In the following quarter, Q1FY23, cement makers are expected to raise prices amid steep cost inflation, showed dealers channel checks by various brokerages. Higher realizations would help the sector prevent the erosion of operating margins.

However, the eastern region is unlikely to see a meaningful increase in prices as it suffers from an acute demand-supply imbalance. Oversupply in this market against the backdrop of inadequate cement demand growth would weigh on prices, at least in the near term. If demand fails to absorb the supply, the region’s utilization can be expected to stay low. Of the total slated capacity additions of 27.5 million tonnes in FY23, 13.1 million tonnes is scheduled in east India alone, according to estimates of JM Financial Institutional Securities Ltd.

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Over the last few years, this region has gained popularity among cement makers, given the large population and low per capita cement consumption. Also, better availability of natural resources such as coal and limestone, which are used to produce cement, has made the east an attractive investment destination for cement makers, analysts pointed out.

“Higher demand growth in the eastern region has also led to higher capacity addition by incumbents and new companies. The five-year capacity addition compound annual growth rate in the eastern region has been higher at 10% than the demand growth of 8.5%," said Mangesh Bhadang, analyst, Nirmal Bang Institutional Equities Ltd. The industry is expected to add around 25 million tonnes of capacity over FY22-23, which is likely to put pressure on pricing in the east, he cautioned.

Among large cement makers, Shree Cement Ltd and Ultratech Cement Ltd would see capacity additions in the east in FY23. ACC Ltd, Ambuja Cements Ltd, Dalmia Bharat Ltd, JK Lakshmi Cement Ltd, The Ramco Cements Ltd, and Nuvoco Vistas Corporation Ltd, are among other companies that have exposure to this region.

In the second half of FY22, demand in the east was impacted by various issues such as unseasonal rainfall and unavailability of sand, said dealers.

This is the reason that cement prices did not remain high after the initial high levels towards the end of March quarter, after the initial increase. According to Kotak Institutional Equities’ Cement prices in the east fell by 3 per bag (of 50 kilograms each) in March from two-year high of 356 in February.

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