Cement-makers are bracing for a hit on their margins – by 15 to 20 per cent – in the April to June period on account of high coal and pet-coke prices.

While demand improved in June on the back of pre-monsoon stocking, companies had to roll back price hikes announced in April-May.

Volume sales are likely to witness 10 - 20 per cent growth on the back of a base effect (low base in Q1 FY22) and improved April demand, trade sources say.

Compared to January-March or Q4 FY22, the average price of international coal and petcoke increased by about 40–50 per cent and 45 per cent, respectively.

“Overall, we expect cost of production to increase further by ₹385/tonne (or 8.6 per cent Q-o-Q) to ₹4,862 /tonne (up 22.7 per cent Y-o-Y),” ICICI Direct said in a report.

However, prices have corrected in the recent month by 10–15 per cent both in the case of petcoke and imported coal. A $10 per tonne increase in petcoke and imported coal price increases the cost of cement manufacturing by ₹50– 60/tonne.

The average consumption prices of power/fuel for most of the cement companies are expected to be in the range of $210-220 /tonne from $170-180 / tonne earlier.

Demand outlook

According to Prashant Bangur, Managing Director, Shree Cement, demand has been on “expected lines” considering the seasonal nature of the commodity.

Demand is expected to pick up in the second fortnight of September 2022 as the impact of monsoon rains recedes.

“May demand was sluggish versus April but improved in June,” Vishal Kanodia, Managing Director, Kanodia Cement, said.

Moving forward, demand has been driven by government projects in infrastructure and housing segments. On the rural front, demand is expected to revive with better monsoon, higher MSP prices for crops and support from other government projects going forward.

Price revision

Trade says cement prices are expected to remain soft in Q2FY23. No major price corrections are expected at this point, say cement companies.

The companies hiked prices in April (by about ₹15-60 per bag) to combat rising input costs depending upon the regions. Price hike was the sharpest in North and Central regions followed by East and West.

In the South, while prices were lower to flat YoY, they started correcting early May followed by further correction in June by ₹15- 30 per bag. The companies tried to raise prices again, but the roll back happened on account of weak demand during these months.

“Industry profitability may dip sharply QoQ further in Q2FY23 in the absence of any price hike, as overall costs/tonne would still increase QoQ while exit Q1FY23 prices are 3 per cent lower than average Q1FY23 prices,” ICICI Securities said in its report.

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