With housing demand reviving and infrastructure development set to pick up pace, cement prices are seeing an upswing.
In the past few days, prices of cement, a key raw material in the construction industry, have gone up by Rs 20-30 per bag month-on-month in south and east India, and Rs 10-15 per bag in other regions, note analysts tracking the sector.
In February too, cement prices were higher by about 1 per cent month-on-month and 3 per cent year-on-year, noted other analysts.
Lower energy price had been a tailwind for the cement sector up to September last year, but is now set to reverse as energy prices have risen substantially, said Amit Murarka, analyst at Motilal Oswal Financial Services.
“Petcoke price is up 74 per cent year-on-year to $122 per tonne on both lower refinery runs and higher sea freight. To mitigate the impact of higher petcoke price, cement producers have partially shifted to imported coal. However, even this is up 24 per cent YoY,” the analyst said.
If that was not enough to drive costs higher, the price of diesel is up 34 per cent from a year ago, on the back of a rise in crude oil price and increase in government duties, which will have an impact on the freight cost of cement manufacturers.
“We estimate freight cost to rise by Rs 25-30 per tonne quarter-on-quarter in the fourth quarter of FY21 and by another Rs 15-20 per tonne in the first quarter of FY22,” said Murarka of Motilal Oswal.
Cement production fell by around 6 per cent year-on-year in January, as per the core sector data released by the union government. Cumulative production over April 2020 to January 2021 was also down 16.6 per cent, the data showed.
However, cement demand has been picking up from February and is expected to continue till the onset of monsoon as construction firms look to complete year-end deadlines, while the budget allocations and funds are also likely to be passed on to the states, feels Milind Raginwar, analyst at Centrum Broking.
Higher cement prices haven’t gone down well among developers. Real estate body CREDAI wrote a letter to the Prime Minister earlier alleging cartelization in the prices of steel, cement and other raw materials.
“Real estate developers are experiencing an inevitable increase in construction cost and are faced with situation that will create a delay in delivery, stalling of projects in some cases, thereby impacting the homebuyers at large,” it said in that letter.
However, the price hikes will help alleviate near-term margin concerns for cement manufacturers, say analysts. Cement companies were hit hard due to COVID-19 as the pandemic put the brakes on construction activities in 2020, in turn affecting demand for the key raw material. However, with demand now improving, the expectation is that the price hike will be absorbed in the industry.
“If the price hikes are accepted well this will ease the pressure on the cement industry mounted by the increasing input cost inflation,” said Raginwar of Centrum.
A pickup in real estate activity, especially in small towns as well as affordable housing and infrastructure projects is expected to drive cement demand this year.
“We believe rural demand will be the major driver for cement, considering the monsoon has been favourable in most parts of the country. This could translate in an inflow of cash in the rural economy, which could commensurate in infrastructure creation, thus augmenting cement demand,” said Urvisha Jagasheth, research analyst, CARE Ratings.