Cement sales volumes are expected to improve January onwards on the back of a pick up in government infrastructure projects, housing and a revival in urban real estate. On a sequential basis, cement sales volumes are expected to increase 10-20 per cent in December, primarily with demand improving from the second half of the month.
November witnessed a volume decline while numbers were up in the second half of December. The uptick is expected in January. Historically, January witnesses higher cement demand over the previous months, as per analysts and cement company executives.
However, a high base effect in Jan–Mar period of 2021 (or Q4FY21) may lead to 3-5 per cent decline in overall industry numbers, according to some brokerage firms.
Brokerages anticipate a 8.6 per cent growth in industry volumes in FY22; but a decline of 5-7 per cent in Q3FY22 (October - December 2021) because of weak demand in November; they also expect an 8-9 per cent growth in CY2022 for the sector.
“Demand improved in the second half of December and the trends suggest this is likely to continue into January. Labourers have returned to work post the festival season; and there is an uptick in infra projects. Initial trends for Q4FY22 suggest growth in demand, stability in raw material costs and prices,” Prashant Bangur, Joint MD, Shree Cement – the country’s second largest cement-maker – told BusinessLine .
Sources say cement prices have been under pressure in November and December. With the industry taking a volume hit in November, key players announced a roll back in price hikes (announced in October). Focus was on pushing volumes by year-end.
According to Motilal Oswal, the pan-India average cement prices fell 6.5 per cent MoM in December. In the North, prices declined by ₹10 per bag; by ₹5-10 per bag in Central India and by ₹20–25 per bag in the eastern and southern markets.
The brokerage said based on coal and petcoke price trends, average spreads (cement price net of taxes, raw material costs, energy costs and freight costs) in Q3FY22 are 7 per cent lower YoY; and 2 per cent lower than the previous quarter of the fiscal.
According to Sandip Ghose, a cement industry veteran, companies continue to focus on cost optimisation, de-risking efforts and ESG adherence. “The industry will be in a better position to implement price hikes from January onwards as further uptick in demand is expected in the coming months,” he said.
Companies are also making a concerted effort to premiumise their product range and add innovative construction additives (such as waterproofing compounds) and supplements (wall putty, tile adhesives etc) to enhance value, Ghose added.
Costs and margin
Industry sources say, there has been a decline in imported coal and pet coke prices in the last two months. South African coal prices have fallen to $130-140/tonne from its peak of $220- 230/tonne; pet coke prices down to $140-150 per tonne (from its peak $220/ tonne). Average fuel cost for the industry should increase by ₹100-150/tonne in the October-December period.
ICRA, in its December report, said, coal prices declined 26 per cent month-on-month following easing of supply in China but remained higher by 143 per cent YoY for the 9 month FY22 period. Pet coke prices, which move in tandem with crude oil prices, too declined by 25 per cent MoM, but were higher by 91 per cent YoY during that period. Diesel prices were 22 per cent higher YoY during first nine months of FY22.
“Cost inflation should ease off from early 2022 as input prices (petcoke, coal, and diesel) have declined 15-40 per cent in the past couple of months from their recent peaks. With higher consolidation and rising utilisation levels, cement prices are expected to see a gradual improvement,” Emkay Global said, adding that margins are likely to bottom-out in the October-December 2021 period.
“The elevated input costs are likely to exert pressure on the operating margins which are expected to decline by 200-240 bps in FY22,” ICRA’s report said.