Cement News

cement prices: Capacity addition to limit improvement in profitability for cement makers


While the recent uptick in prices and lower input costs is seen shoring up the operating profit of Indian cement makers in the near term, profitability is seen capped over the medium term as companies are unable to take significant price hikes amid capacity additions, analysts said.

India is expected to consume around 440 million tonnes of cement this year, as it clocks in a strong double-digit growth in volumes. With demand expected to grow in double digits or at least high-single digits over the next few years, most cement makers have also announced large capacity expansion plans.

This will lead to around 40 million tonnes of cement capacity being added each year between FY24 and FY25, which compares to an addition of 20 million tonnes each year between FY18 to FY23.

“A focus on retaining market share amid capacity additions will test the industry’s pricing power despite the growing demand,” Fitch Ratings said in a note.

Capacity Additions

While Adani Cement plans to double its capacity in five years, the country’s largest producer UltraTech Cement has targeted raising its capacity to 200 million tonnes from 132 million tonnes currently. Dalmia Bharat, JK Cement and Shree Cement are among the other producers which have announced capacity expansion plans.The fervent pace of capacity addition will also prevent margins from improving to the extent that was seen in FY21, when lower prices of energy aided the profitability even though the impact of COVID-19 had weighed on demand, the rating agency said.Cement prices, in fact, have been on a soft footing for most of this year even despite demand having grown in the range of 15-20% so far in the current financial year. This is because companies have been focusing on pushing volumes to retain market share, analysts said.

In the current financial year, though, the profitability of these companies is set to recover from multi-year lows helped by a sustained growth in demand on the back of a surge in government’s infrastructure spending, and a fall in key input costs.

A sharp jump in fuel and power costs had seen the operating profit of cement makers shrink to their lowest level in eight years to around 770 rupees per tonne in 2022-23 (Apr-Mar).

Input Costs

Helped by prices remaining stable and the lag impact of using lower-priced fuel, this profitability is set to recover by as much as 26% or 200 rupees per tonne in the current fiscal, CRISIL Ratings said in a recent note.

“Power and fuel costs, which constitute 30-35% of the total production cost, will follow the trend of falling pet coke and coal prices with a lag effect. For this fiscal, power and fuel costs are likely to be lower by Rs 200-250 per tonne on-year,” Naveen Vaidyanathan, director at the firm said.

While cement prices have been tepid over the last few months, companies have been able to take some price hikes recently, helped by the government’s spending on infrastructure ahead of the general elections in 2014, which has stirred demand.

Following weak monsoon rains in August, companies have been able to hike prices in September, with the eastern region taking the lead with two price hikes amounting to as much as 35 rupees per bag. Prices are likely to be further raised by 10-35 rupees per bag across India for the month of October, analysts said.


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