Price hike, falling input costs drive fortunes of cement stocks
Cement stocks are gaining momentum as price hikes are being announced in certain regions. The Shree Cement stock has gained more than 12% in the last three trading sessions, while India’s largest cement producer, UltraTech’s stock prices saw gains of more than 4%
PremiumNEW DELHI : Cement stocks are gaining momentum as price hikes are being announced in certain regions. The Shree Cement stock has gained more than 12% in the last three trading sessions, while India’s largest cement producer, UltraTech’s stock prices saw gains of more than 4%. Dalmia Bharat, ACC, and Ambuja Cements were not far behind with gains of 3.5-6.5%.
For cement manufacturers, positives are also expected to accrue from declining input costs with a correction in commodity prices. The end of monsoon season may mean a pickup in construction activities and cement manufacturers are attempting price hikes now. Both factors are favourable for margins and earnings growth of cement companies though sustenance of price hikes will be closely watched.
Manufacturers in eastern India announced ₹10-15 a bag price increase since 5 September and indicated another ₹10 per bag increase from 15 September, according to Jefferies India Ltd. Notably, this price hike comes after a decline in cement prices by ₹40-60 a bag in the region since May. While demand became subdued because of destocking ahead of the monsoon season, it was followed by a construction slowdown during the monsoon.
The region has also seen significant capacity expansions over the past few years. Hence, cement prices saw significant correction. A rebound in cement prices in the region is likely to provide some respite.
Western India also saw producers announce price increases of up to ₹20 per 50 kg bag in Ahmedabad and Pune markets from 5 September, said analysts. Infrastructure demand remains strong in the region. Northern and central regions too have seen price hikes of up to ₹15, while the southern region has seen price hikes of ₹40, said analysts at Anand Rathi. However, in south India weak demand and festivals will keep prices in check, keeping sustainability of price hikes under pressure, said analysts.
Nevertheless, price hikes being announced after a fall in cement prices in August are likely to bring respite. The all-India average appears to be below the January average when the cost pressure was less, said analysts at Jefferies.
Falling energy prices may also accrue benefits from the December quarter.
Analysts at Emkay Global Financial Services said operating costs should peak in Q2 FY23 and may decline in the coming quarters, with international pet coke prices down by about 40% in the past four months to $175 a tonne. Pet coke prices can decline further with a fall in crude oil prices.
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