Reality check for cement sector as prices dip in Nov | Mint

Reality check for cement sector as prices dip in Nov

For now, all-India cement trade prices are currently still  ₹17 per bag higher compared to Q2FY24. Image source: Piaxabay
For now, all-India cement trade prices are currently still 17 per bag higher compared to Q2FY24. Image source: Piaxabay

Summary

  • While cement demand is expected to remain robust in the run-up to the general elections, slated in 2024, pricing pressures may get severe once demand fades out

The recent surge in cement prices was not expected to sustain. A partial rollback in prices was widely anticipated after a sharp uptick in September and October.

Average all-India cement price of one bag (50 kg) in the trade segment have fallen by almost 2% month-on-month to 382 so far in November, according to dealers channel check by Nomura Financial Advisory and Securities (India). The trade segment is where cement is sold by the manufacturer to the dealers.

The steepest decline of 13 per bag was seen in the north as the festive season usually leads to a labour shortage. A ban on construction activities in the Delhi and National Capital Region due to pollution is also said to have hurt demand.

Cement dealers expect demand in this region to recover after Diwali and Chhath Puja as labour unavailability eases, said the Nomura report dated 20 November. Large-caps Ambuja Cements, ACC, Shree Cement and UltraTech Cement have meaningful exposure to the north.

The pace of capacity additions also has a bearing on pricing prospects. “North is expected to witness the second highest capacity addition in the country over the next two years after south. In FY24, an additional cement capacity of 6-7 million tonnes is expected to come on stream in the north, which is close to 18% of the total incremental capacity expected in the sector throughout the country in FY24," said Ravleen Sethi, associate director, CareEdge Ratings.

Taking a U-turn
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Taking a U-turn

Currently, the north is operating at capacity utilisation of over 80%, which is the highest among all regions, she added. So, with additional capacities coming on stream utilization might be impacted unless demand is on a solid footing. Thus, the bouts of price corrections cannot be ruled out.

For now, all-India cement trade prices are currently still 17 per bag higher compared to Q2FY24. If prices sustain at the current level, it should aid the realization outlook in Q3FY24. On the input costs front, analysts note that prices of fly ash and slag are elevated. However, spot prices of imported petroleum coke and coal have softened marginally month-on-month in November so far.

Meanwhile, while cement demand is expected to remain robust in the run-up to the general elections, slated in 2024, pricing pressures may get severe once demand fades out. Amid heightened competition and large capacity additions, the chase for market share gains may intensify, forcing companies to choose between volume growth and realisations.

 

 

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