Cement: Prices fall, but cost tailwinds emerge

livemint.com:

₹10 per bag, showed a dealers’ channel check by Nomura Financial Advisory and Securities (India). One cement bag weighs 50 kg. The trade segment is where cement is sold by the manufacturer to the dealers.

Region wise, this fall in prices was led by the southern and eastern markets, declining by ₹16 and ₹15 per bag, respectively. The correction in these markets was expected by dealers as demand remained subdued and companies emphasised achieving volume targets, Nomura said in its report dated 8 December. Despite the recent softening, trade prices have remained strong on a sequential basis, up ₹13 per bag versus the September-quarter average (Q2FY24).

But pricing pressure indicates that the chase for market share gains is getting stiff amid heightened competitive intensity. In this backdrop, easing input costs provide a breather to investors in shares of cement companies. Elevated cost of key fuels, coal and petroleum coke (petcoke) had triggered fears of inflation making a comeback.

But these fears have eased. According to a Jefferies India report on 13 December, the trend of higher input costs has reversed in the past one-two months. The cost of international coal is down by 15-20% after rallying more than 50% from the recent bottom, while petcoke cost has eased much lesser by 5-7% after rallying around 30% from the bottom, Jefferies said.

This should translate into some operating cost savings for cement manufacturers, boosting the sector’s near-term profitability prospects. After all, power and fuel costs are estimated to constitute 30-35% of the sector's total production cost. “The average fuel consumption cost stood at ₹1.9 per kcal for our coverage companies (versus spot/ last six-month average of ₹1.6 per kcal).