Cement firms see higher demand but muted pricing; likely to face input cost flare-ups

Demand for cement is witnessing an uptick af ter a drop during the first few weeks of Januar y. As per a Motilal Oswal report, volume is bouncing back strongly. On the pricing front, the trend remains largely muted, however, it varies from one geography to another.

Demand picking up:

Pan India demand for cement has been strong in Februar y led by continued strong demand in the east, north, and central. Demand is reviving in the west. But, the south market still remains weak.

Demand in the East has been particularly strong (>10% YoY). It is supported by preelection spending in West Bengal and strong industrial/infra demand in Odisha.

Demand in west, north, and central has improved in Februar y as the construction work is picking up due to a receding winter. Revival in the west market is largely supported as Maharashtra volumes are now on the rise for the first time since the pandemic.

Demand in the South has remained weak on a yearly basis but improved sequentially. Andhra Pradesh and Telangana markets, in particular, are gaining more traction.

Mixed pricing trend across the regions :

Pricing trend in Februar y remained mixed across the regions. Prices improved by 1-2% in North in Februar y, led by a hike of Rs 5–10/bag hike across the region. Prices in Central India remained flat at Rs 349/bag compared to Januar y. Central India has largely remained flat over the years. Current prices are up only 3% YoY. Trend in the western market is also similar. Cement price is up 1% MoM in Mumbai and Ahmedabad. On a yearly basis, it is up 3% YoY.

In the eastern market, prices remained flat in Februar y on a monthly basis. However, this market has been quite volatile over the year as price has declined ~Rs 50/bag or ~15% since May’20. In contrast, prices in the southern market are still up ~Rs 30/bag YoY to Rs 371/bag in Feb’21, led by hikes taken over Apr–May’20. On yearly comparison, prices are up 11%/12%/12%/3% YoY in Andhra Pradesh / Tamil Nadu / Karnataka / Kerala.

Energy cost shooting up:

Increasing cost of raw materials will affect the operational efficiency of cement companies in the coming quarters. Petcoke prices have risen substantially up to 71% from last year. Cement producers are likely to switch to imported coal to mitigate the rising pet coke prices.

Diesel price is also up 26% YoY in Feb’21 which would result in higher freight, power and fuel cost in Q4FY21. However, the companies would be looking to neutralise the rising input costs from increasing demand and lower requirements for plant maintenance due to the seasonal factors.

The companies would be looking to neutralise the rising input costs from increasing demand and lower requirements for plant maintenance due to the seasonal factors