Cement Sector Outlook: Q3 Pricing & Volume Strength
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- Cement prices experienced a softening at the close of the december quarter, but the Indian cement sector remains underpinned by robust demand and increasing sales volumes.
- What: Cement prices saw a sequential decline in Q3 FY24, but early signs of price increases are emerging in Q4.
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Last Updated: January 26, 2024
Cement prices experienced a softening at the close of the december quarter, but the Indian cement sector remains underpinned by robust demand and increasing sales volumes. This article analyzes recent pricing trends, the factors impacting profitability, and the outlook for the coming quarters, especially Q4 FY24 and beyond. We’ll explore what’s happening in the market, what it means for industry players and consumers, and what to expect next.
The Recent Dip: Q3 FY24 Performance
According to Jyoti Gupta, Institutional Analyst at Nirmal Bang, cement realisations in Q3 FY24 were “muted, with prices declining by roughly around 2%, coudl be slightly higher, sequentially across our coverage universe.” This decline occurred despite strong underlying demand. Several factors contributed to this situation:
* Reduced State GST Rebates: A 10% cut in state GST rebates put downward pressure on profitability.
* Rising Petcoke Prices: A significant 24% increase in petcoke prices (a key fuel source) increased production costs.
* Capacity Additions: Increased cement production capacity across the industry is creating a supply-demand imbalance, limiting pricing power.
While a 22% fall in coal prices offered some relief, its impact was limited as coal only accounts for approximately 35% of the total fuel consumption across India.Consequently, gupta anticipates a sequential decline in EBITDA per tonne of roughly ₹75 to ₹125, varying based on individual company fuel mixes.
Emerging Price Hikes: A Glimmer of optimism in Q4
Despite the challenges in Q3, positive signals are emerging for Q4 FY24. Gupta notes that price hikes have begun, particularly in the non-trade segment.
* Regional Price Increases (Non-Trade): Increases of ₹35 to ₹40 per bag have been observed across regions.
* South India: ₹30-₹35 increase
* north India: ₹25-₹40 increase
* trade Segment Lag: Price increases in the trade segment are expected to lag behind, potentially delayed by festive demand around Makar sankranti in the South and West.Clarity on trade price adjustments is anticipated within a week or more of increased market penetration.
– victoriasterling
The initial price hikes in the non-trade segment are a positive indicator, suggesting that manufacturers are attempting to regain some margin. Though, the slower response in the trade segment highlights the sensitivity of this market to demand fluctuations and competitive pressures. The success of these price increases will depend on sustained demand and the ability of manufacturers to manage cost pressures. The impact of the upcoming general elections on infrastructure spending and, consequently, cement demand, will also be a key factor to watch.
Sector Outlook: A Volume-Led Cycle with consolidation Potential
The Indian cement sector is currently characterized by a volume-led cycle. Strong demand is driving utilization levels and improving cost structures. Though, the large-scale capacity additions are capping pricing power, leading to short-term volatility.
Key Trends:
* Strong Demand: Underlying demand remains healthy,supporting overall sector performance. (Further research needed to quantify demand growth rates and key demand drivers – infrastructure projects,housing,etc.)
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