A recent report from Kotak institutional suggests that all-India cement prices increased 6% MoM in March 2021. The trend has reversed after the slide in prices since June 2020. However, with a sharp hike in March, the impact of inflated commodity prices is now visible in this sector.
Region-wise impact:
1) Central—prices increase by Rs 3/bag:
Cement prices in the Central region increased by Rs 3/bag MoM in March 2021. Demand is strong, led by the government’s extensive focus on infrastructure. This has resulted in cement shortage in certain markets in the trade segment.
2) West—prices increase by Rs 17/bag:
A similar trend is observed even in the Western market where increased government activities have resulted in demand pick up. This has even resulted in cement shortage. Prices in this region have increased by Rs 17/bag MoM in March 2021.
Gujarat is witnessing robust demand while Maharashtra is seeing a resurgence after a slow recovery. However, increased Covid-19 cases have brought back the fear of lockdowns. It is once again threatening to derail the recovery process.
3) South—prices increase by Rs 45/bag:
In Southern India, cement prices increased sharply in March 2021. The demand also remained strong due to various state government projects providing support. Prices in Andhra Pradesh, Karnataka, and Kerala increase by Rs 25-50/bag. In Tamil Nadu, it has gone up by Rs 55/bag and in Andhra Pradesh by Rs 33/bag.
However, the dealers are expecting price hike to be unsustainable as it could impact the demand. Enforcement of stricter lockdowns with the rise in Covid-19 cases is another threat to the demand. As a result, the dealers are expecting the prices to correct.
4) East: West Bengal, Odisha sees sharp price uptick
Among the Eastern region, prices increased by Rs30-35/bag across most states. The demand has been a mixed bag here with West Bengal and Odisha outperforming while it remains under pressure in the states of Bihar and Chhattisgarh. Dealers here are expecting the prices to remain stable as supply is in shortfall.
5) North: Prices moderates by Rs 1/bag
North is the only region where cement prices have moderated. The prices have declined by Rs 1/bag in March 2021. Dealers here believe that farmer agitation could have impacted the rural demand. They are expecting sales to pick up in the coming days before the festive lull in North India.
Variable costs remain on an uptrend:
The production cost has seen an adverse impact due to the increased cost of power & fuel and freight cost. Power & fuel costs have gone up by 4% MoM in March 2021. Diesel prices are up 9% QoQ in Q4FY21.
Both pet coke and imported thermal coal prices are up 50% in the past six months. The cement companies have so far managed to mitigate its impact due to the availability of substantial inventory at their disposal. However, that comfort is gone now. It has exposed the companies to the volatility in raw material prices.
