Cement price stable so far; hike likely in April 2023: Report

The all-India average cement price in the fourth quarter (4QFY23) of the ongoing financial year appears to be flat to marginally negative versus 3QFY23, says a report by Motilal Oswal Financial Services. According to data available with the company, north, west and central India have witnessed an average price increase of 1-3% QoQ in 4QFY23 while prices in east and south regions have declined 2%/5% QoQ.

According to the report, the attempts to increase cement price in February-March 2023 period were reversed by discounts, incentives and price cuts.  MOFSL’s interaction with channel partners suggest that cement companies may announce discounts and schemes to meet their year-end volume targets and there could be price hikes in early April 2023.

“Cement demand remains strong supported by increased government spending, accelerated project executions, rising real-estate demand and private capex. However, demand from IHB and retail segment remains modest due to constant interest rate hikes and inflationary impact,” the report said.

The company estimates 4-5% YoY volume growth in 4QFY23 even on a high base of the previous two years.

Demand in the east and south regions remain resilient driven by numerous ongoing government projects and pick-up in real estate and private capex. Tamil Nadu is seeing high double-digit demand growth, backed by increased government spending (currently 34 road projects are in progress, highest in a decade). Likewise, in Orissa, cement demand remains buoyant with faster execution of government projects. Some stockists in the central region (Uttar Pradesh) mentioned that demand from infrastructure segment is weak.

“Industry participants expect near-term cement demand to remain strong fuelled by pre-election spending by the Central government, continued thrust on infrastructure development, rise in real estate and urban housing demand and private capex. MOFSL estimates 11%/8% YoY demand growth in FY23/FY24,” it said.

All-India average cement price down 1% MoM in Mar’23

Average spread appears to be up Rs 70-80/t QoQ in 4QFY23 Based on variable costs and cement price movements over the past few months, the company estimates the average spread in 4QFY23 for trade sales (cement price net of GST- variable costs) to be Rs 70-80/t higher than the 3QFY23 average. It also expects companies to benefit from higher operating leverage as industry volume is likely to increase 10% QoQ.

MOFSL is positive on the cement industry dynamics for the next few years considering better demand prospects, led by infrastructure and housing sectors, increased consolidation in the industry and regulatory changes in the allotment of limestone blocks.