Cement companies across India have announced significant price hikes for September 2023 following a decline seen in cement prices in August compared to July levels, said IIFL Securities after talking to dealers.
According to the broker, cement manufacturers have indicated price increases of around Rs 35 per bag in the Eastern markets.
Other regions like the North, West and Central markets have also seen price hike announcements of Rs 5-15 per bag by companies, except for the South where no hikes have been notified so far, it said.
Hikes Notified for September
As per channel checks conducted by IIFL Securities, cement companies across regions have announced substantial price hikes for September 2023 in order to shore up realizations and profitability:
North – Cement manufacturers in the Northern region have announced price hikes ranging from Rs 10-15 per bag across different states for September.
Central – While price increases to the tune of Rs 5-10 per bag have been announced in the Central market for next month, dealers are skeptical about the sustainability of these hikes and expect prices to remain under pressure.
West – Players in the West have also initiated plans to implement price hikes of Rs 10-15 per bag across states in September based on dealer channel checks.
East – The steepest price hikes for September have been announced in the Eastern markets at up to Rs 35 per bag by cement companies. Discounts have also been reduced in addition to the steep price hikes.
South – In contrast to other regions, no price increases have been announced yet by manufacturers in the Southern markets for September.
All India – With the sharpest increases slated for the East, cement producers seem determined to bolster realizations in September through a combination of price hikes and lower discounts. But maintaining these higher prices against the backdrop of seasonally weaker cement demand in the September quarter will be crucial.
Forgettable August
This comes after the average all-India cement price fell by 1.4 percent or Rs 5 per bag in August 2023 compared to the previous month as the price hikes undertaken in July could not sustain and were reversed. As a result, August exit prices were largely flat compared to the exit prices in the first quarter of FY2024 ending June.
On a region-wise basis, cement prices in August were either flat or negative. The sharpest decline was registered in the East at around 4 percent followed by the Central region at 2 percent. The West and North saw a moderate price fall of 1 percent each. Prices were unchanged in the South market.
Compared to the first quarter average, the all-India cement price in the second quarter so far has remained flat. This is because the price hikes seen in the North (3.5 percent) and Central (2.1 percent) markets were mostly offset by softness in the South (-2.2 percent) and East (-1.7 percent). Prices in the West have also been largely stable between the two quarters.
According to the report by IIFL Securities, here is a summary of how cement prices moved across different regions in August:
North – A marginal decline of 0.5 percent month-on-month or Rs 2 per bag was seen in the Northern market during August. The price hikes of up to 3.5 percent implemented across the region in July when demand was muted have been partially reversed.
Central – Prices in the Central market fell by 1.5 percent or Rs 5 per bag in August, coming after hikes over the previous two months. New capacities and heavy inflows from other regions have kept cement prices subdued in the Central market.
West – The Western region saw average cement prices drop by 1 percent or Rs 4 per bag in August. This was the first price fall after four months of steady prices as demand softened. As a result, prices dipped slightly below the average for the first quarter.
East – Among all regions, the Eastern market recorded the steepest drop of 3.6 percent or Rs 12 per bag in August due to weaker demand and intensifying competition between players.
South – Cement prices in the Southern markets remained unchanged in August after witnessing significant declines over the past few months. Prices continue to trend below the first quarter average levels.
All India – On an all-India basis, average cement price fell by 1.4 percent or Rs 5 per bag in August compared to July. This reversed the price hike undertaken in the previous month. Cement prices have now retracted closer to the first quarter exit levels.
Cement Price Trend In Recent Times
Cement prices across India had seen a broad decline of Rs 25-30 per bag during the second half of 2022 as demand slowed while cost pressures also abated significantly from the highs seen in mid-2022. But a gradual recovery in cement demand since February 2023 has prompted a price uptrend.
Here is how average cement prices have moved across different regions in 2023 so far:
North – After hitting a low of Rs 325 per bag in October 2022, average cement price in the North has progressively moved up to Rs 353 per bag by August 2023. But current prices are still below the peak of Rs 385 per bag seen in April 2022.
Central – The Central market saw cement prices fall to as low as Rs 295 per bag in September 2022 before recovering to Rs 330 per bag in August 2023. However, the uptrend over the past six months has been uneven.
West – Prices in the Western region had declined to Rs 340 per bag in October 2022 but have since rebounded to Rs 368 per bag as of August 2023. Nonetheless, they still remain below the highs of Rs 390 per bag witnessed in March-April of 2022.
East – Among key regions, the East saw the sharpest fall in cement prices that bottomed out at Rs 270 per bag in October 2022. But a demand recovery has led to a price improvement since February to around Rs 320 per bag in August.
South – The South market also recorded a significant drop in average prices to Rs 270 per bag in October 2022 before a gradual recovery over the past six months lifted prices to Rs 320 per bag by August 2023. But current prices are still below last year’s peak levels.
All India – On a pan-India basis, cement prices had declined to a low of Rs 310 per bag in September 2022 as demand slowed post-monsoon. This has been followed by a steady recovery over the past six months driven by pent-up demand to around Rs 338 per bag in August 2023.
Outlook
According to IIFL Securities, the ability of cement manufacturers to sustain the price hikes announced for September will be crucial, given that the September quarter usually witnesses weaker cement demand.
Dealer commentary indicates that cement demand continues to be moderate currently with the onset of monsoons. However, below-average rainfall in August could provide a boost to cement demand and construction activity over the next few months.
While profitability is likely to remain under pressure during the seasonally weak second quarter due to lower volumes, stability in quarter-on-quarter realizations and the benefit of lower energy costs could lend support.
If the notified price increases for September are maintained, it would help offset the recent spike in costs and drive better industry profitability, IIFL said.
The medium to long term outlook for cement demand remains positive given the healthy momentum in infrastructure projects and the real estate sector. This should support cement prices staying in an uptrend after the current seasonal weakness passes.