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Why Indian Cement Industry is facing downturn?


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The Indian cement industry experienced a significant downturn in the latter part of FY24 following a price hike in October. According to an analysis by CRISIL, competition and capacity expansion led to a drop in cement prices across the country. The prices per 50 kg bag fell by Rs 40-Rs 45 over the five months ending on March 31.

Regional Cement Price Declines

With the exception of states in western India, cement prices in all other regions declined as of March 31 compared to the previous year. The decline ranged from 0.6 percent to 6.5 percent, according to region-wise pricing data published by brokerage Prabhudas Lilladher. However, analysts noted that lower input costs are helping companies offset the impact of lower prices.

Factors Contributing to the Decline in Cement Prices

Several factors have contributed to the sharp decline in cement prices. In the eastern market, demand has slowed due to tightness in the money market and slow payments from state governments. Additionally, supply has outpaced demand. Analysts have identified increasing temperatures, the ongoing general election, labor shortages, liquidity problems, and challenges related to the availability of sand and water for construction as factors contributing to weak demand.

Mixed Price Trends in April

In April, cement prices across central and north India showed mixed trends. Prices remained relatively unchanged in Madhya Pradesh and east Uttar Pradesh, while western Uttar Pradesh saw a decrease of Rs 10 per bag. In Punjab and Delhi, prices declined by Rs 5-10 per bag, while prices in Rajasthan rose by Rs 5 per bag, according to Elara Capital.

Focus on Volumes and Pricing

The decline in cement prices can be attributed to an aggressive focus on volumes at the expense of pricing. CRISIL reported a sequential decline of about 6 percent in cement prices in the fourth quarter, with prices in March averaging Rs 360-362 per bag. The entry of new players, capacity additions, and benign cost pressures have intensified competition, leading to the correction in cement prices.

Optimism for Construction Activity

Analysts are optimistic about a pickup in construction activity before the onset of the monsoon, with significant demand expected from the housing sector. However, they anticipate a short-term pause during the election period and the monsoon season, which may moderate current prices. Lower fuel prices and cost-saving measures implemented by cement firms are expected to offset the negative impact of unfavorable cement prices.

Coping with Subdued Costs and Green Energy Adoption

Cement makers have been able to cope with the challenging market conditions due to subdued fuel costs, including petcoke and coal. These constitute their second highest expense component. Companies are also focusing on expansion activities and investing in green energy solutions such as waste heat recovery systems and solar-based power plants. Lower input costs and energy-saving measures are expected to support margins and profitability for cement firms.

UltraTech, one of the major players in the Indian cement industry, is investing in waste heat recovery systems and expects 150 MW to be commissioned in the next two years. The adoption of green energy is anticipated to reduce energy costs for cement manufacturers.

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