Cement demand picked up in June but prices did not, say brokerages

6 Jul 2022

Cement dealers have indicated an uptick in demand in June according to the latest monthly surveys by brokerage firms.

But cement companies have not been able to take advantage and hike the selling price of cement due to a supply overhang in the market.

According to Jefferies India the average price of cement in the country declined by 1-2% on month in June even as dealers indicated improved demand. It said that supply increase in the markets were depressing the selling price of cement.

Apart from cement dealer checks, analysts have inferred a demand increase in cement from the railway freight data. According to JM Financial, cement volumes transported through rail freight were up 2% on month.

It was up by a larger quantum of 16% on year, but analysts have avoided using the on-year growth as any indication due to the fact that in June 2021 the cement sales were among the worst hit due to new lockdowns in various states during May-Jun.

Brokerage ICICI Securities attributed the increase in demand in June to “pre-monsoon push, pick-up in infrastructure projects, reduction in prices of steel, cement, etc. and better manpower availability.”

The brokerage also said cement companies would have got respite on the input costs front as pet coke prices were down in international markets, indicated by the fact that US pet coke prices fell 10% on month in June.

It also said that “increased sourcing of coal from low-cost destinations like Russia” may have allievated the cost pressures on sourcing overseas coal, which is another key input cost.

A report by Reuters news agency at the end of last month said that UltraTech Cement Ltd, the largest cement producer in the country, had imported 157,000 tn of Russian coal towards the end of the month.

Coal-importing domestic companies from cement, steel and other sectors usually source coal from Asian countries such as Indonesia and Australia.

For the entire quarter period from April to June, the railway freight data, according to JM Financial, indicated an on-quarter decline to 38.6 mln tn from 40.9 mln tn.

Going forward, the key to earnings improvement, said Jefferies, would depend on how stable the cement prices stay during the ongoing monsoon season and whether any cement price hikes post-monsoon can be effected and sustained.