Cement prices set to increase as expenses surge for cement makers

Cement prices are set to increase as costlier Asian thermal coal, and a higher gas price outlook in Europe is expected to surge expenses for cement manufacturers.

Power and fuel prices are likely to rise by 10% in the April-June quarter because of a steep rise in coal and pet coke costs in March, UltraTech Cement Ltd told the media.

UltraTech Cement Ltd told the media that price hikes would be passed on to consumers for profitability to enhance sequentially.

In April, the pan-India cement maker indicated a price hike of Rs 30 a bag to make up for higher commodity prices.

Cement makers tried a Rs 15 to Rs 20 a bag hike pan-India, led by sharper growths in the south and the east for April, as per the dealer checks by Kotak Institutional Equities.

Only a portion of this would get absorbed, and more such increases could be attempted in the coming weeks.

The prices rose 6% year-on-year on an all-India basis for the quarter ended March.

For the quarter ended March, cost inflation, muted volume growth, and inadequate price hikes led to margin contraction. UltraTech said flat volumes and its power and fuel prices were higher than pan-India peers ACC Ltd and Ambuja Cements Ltd. However, its operating profit per tonne dropped the least.

Mainly, the outperformance was driven by operating leverage benefits and more increased realisation—or what it makes on every tonne of cement—in the east.

The margin of UltraTech is likely to contract given its inventory policy and also the recent sharp increase in global energy costs has yet to reflect in the power and fuel price of the company. Higher costs of pet coke and coal are reflected in the financials of the cement producers after a lag of 30-45 days. Margins contracted for ACC and Ambuja as their prices increased.

As per the Motilal Oswal report, ACC estimates a 7% demand increase in 2022 compared with 11-13% seen by the industry in the last year.

Ambuja Cements said that demand is expected to be driven by rejuvenation in real estate, promising 2022 crop outlook, India's infrastructure push, and execution of production-linked incentives to encourage domestic demand.

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