Cement prices surge amidst poor demand

Cement manufacturers have boldly increased prices by around 12-13 per cent in the past month, despite the absence of the usual post-monsoon demand surge. This move comes as input costs rise and represents a departure from the cautious approach these companies had adopted in recent months when setting prices.The all-India average cement price has now reached Rs382 per 50 kg bag, with the sharpest increase observed in the eastern region, where prices rose from Rs326 to Rs400.Traditionally, demand for cement is weak in the September quarter due to reduced construction activity during the monsoon season. Cement companies typically lower prices when their sales volumes are impacted by sluggish demand.The decision to raise prices significantly during this period of subdued demand is seen as unusual. Some analysts suggest that this move is aimed at establishing a higher price base in anticipation of a demand recovery after the monsoon season ends.Additionally, the price hikes come at a time when raw material costs are once again on the rise. Imported coal prices have increased by 15 per cent in the past three months, and pet coke prices have surged by 28 per cent. While these prices are still lower on a year-on-year basis, operating costs for the cement sector are expected to rise starting from the March 2024 quarter. This could put pressure on the profit margins of cement manufacturers.Analysts estimate that if cement companies can sustain the recent price increases, they may achieve higher earnings before interest, taxes, depreciation, and amortisation (EBITDA) per tonne of Rs1200-1300 in the second half of the current fiscal year, compared to Rs 800-900 in the previous quarters.Ravi Sodah, a cement analyst at Elara Capital, expects that the benefits of the recent price hikes will become fully evident in the December 2023 quarter, leading to improved margins for cement firms.Given these factors, large cement companies like Ultratech Cement, Ambuja Cements, and Shree Cement, known for their strong market presence and robust balance sheets, are likely to reap the benefits in the coming quarters.