Home / Markets / Mark To Market /  Cement prices improve across India in June; southern India sees maximum hike

Cement prices have improved across India in June. The latest dealers channel check by Kotak Institutional Equities showed that all-India prices rose 4% to 376 per 50-kilogram bag, on a month-on-month (m-o-m) basis. This was led by an 11% m-o-m rise in prices in southern India to 415 per bag.

Pent-up demand has translated into higher prices. Dealers say, upon re-opening of markets, demand is driven by state government projects in areas such as schools, roads and affordable housing and Tier 1 and Tier 2 cities with the restart of infrastructure projects. Barring south, pan India prices remained flat after the last hike in March 2021, the report added.

The cement sector has been grappling with cost pressures in the recent past on the back of ongoing increase in prices of key input materials petroleum coke (pet coke) and coal. Pet coke prices have stabilised at $130/tonne in 1QFY22 but are up 14% sequentially. Similarly, prices of international coal prices are up 16% compared to March quarter of FY21. Management commentary by cement manufacturers points to a further increase in prices of these fuels. Also, freight cost for the sector has increased as diesel has become expensive.

In a bid to protect their operating margins, cement companies had taken a price increase in March. In Q4FY21, margins of key cement makers were also aided by low-cost inventory and operating leverage.

The second quarter of the fiscal year falls in the monsoon season and is hence a seasonally weak quarter. Historically, cement prices correct by 2-3% sequentially during July-September quarter. But this time around since 1QFY22 was impacted by the lockdown, sequential demand recovery should keep prices stable in the near-term, dealers indicate.

"With the limited impact of the fuel cost escalations cushioned by mix optimisations, and sustained hikes in the cement prices over last couple of months, we expect the Ebitda/tonne to witness a sequential improvement in 1QFY22. However, decline in volumes owing to COVID-19 may offset the gains partially," analysts at JM Financial Institutional Securities Ltd said in a report. Ebitda is short for earnings before interest, tax, depreciation and amortization.

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