Analysts caution that days of soft input costs and stellar margin growth are behind the sector. In this backdrop, it is important for cement prices to remain firm so that the impact on operating margins is limited.
Cement prices in eastern India continue to bear the brunt of increasing supply. Even though cement demand is recovering, it is yet to reach a level where this massive supply can be absorbed without hurting prices. Latest dealers channel check by Nirmal Bang Securities Ltd showed that in this region, on an average, prices fell to ₹274/bag in December from ₹296/bag in November. One cement bag weighs 50 kilograms. At an all-India level, prices fell to ₹334/bag from ₹344/bag in the same span.
"The pricing correction in the East region has been very severe with various markets reporting their lowest ever pricing in a long time. Excess supply and upcoming new capacities in the region are leading to excessive price competition than anticipated earlier," the broking firm said in a report on 18 December.
Cement major Ultratech Cements Ltd recently announced fresh capacity additions in the East region. Upbeat on the sector’s demand prospects, has laid out a three-year capacity expansion plan. Ultratech will increase its clinker capacities by 9.1 million tonnes (mt) and grinding capacities by 12.8mt by Q4FY23. This is in addition to the ongoing grinding capacity addition of 6.7mt and clinker capacity addition of 2.3mt.
Another factor that may have contributed to this price correction is the recent order by fair trade regulator alleging cement companies of cartelisation analysts said. As a part of this inquiry, several offices of companies have been raided by the Competition Commission of India.
Meanwhile, input cost inflation is emerging as a worry for investors in cement stocks with prices of key input materials petroleum coke and diesel on an upswing. Analysts caution that days of soft input costs and stellar margin growth are behind the sector. In this backdrop, it is important for cement prices to remain firm so that the impact on operating margins is limited.