Mixed Cement Price Outlook for Eastern India

Cement companies are expected to exit the March quarter (Q4FY22) with stable prices, despite strong seasonality in Q4. In the next quarter, Q1FY23, cement makers are expected to raise prices amid high cost inflation, dealers showed channeling audits by various brokerages. Higher realizations would help the sector prevent the erosion of operating margins.

However, the eastern region is unlikely to experience a significant price increase as it suffers from an acute imbalance between supply and demand. Excess supply on this market in a context of insufficient growth in cement demand would weigh on prices, at least in the short term. If demand fails to absorb supply, the region’s utilization can be expected to remain low. Of the total planned capacity additions of 27.5 million tonnes in FY23, 13.1 million tonnes are planned in eastern India alone, according to estimates by JM Financial Institutional Securities Ltd. .

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In recent years, this region has gained popularity among cement manufacturers, given its large population and low per capita cement consumption. Also, better availability of natural resources such as coal and limestone, which are used to produce cement, has made the east an attractive investment destination for cement producers, analysts pointed out.

“Stronger demand growth in the Eastern region has also resulted in increased capacity being added by incumbents and new entrants. The compound annual growth rate of capacity addition over five years in the Eastern region was more than 10% against the demand growth of 8.5%,” said Mangesh Bhadang, analyst at Nirmal Bang Institutional Equities Ltd. The sector is expected to add about $25 million. tonnes of capacity in FY22-23, which should put pressure on prices in the East, he warned.

Among the large cement manufacturers, Shree Cement Ltd and Ultratech Cement Ltd would see capacity additions in the East during FY23. ACC Ltd, Ambuja Cements Ltd, Dalmia Bharat Ltd, JK Lakshmi Cement Ltd, The Ramco Cements Ltd and Nuvoco Vistas Corporation Ltd are some of the other companies with exposure to this region.

During the second half of FY22, demand in the east was affected by various issues such as unseasonal rainfall and unavailability of sand, dealers said.

This is the reason why cement prices did not stay high after the initial high levels towards the end of the March quarter, after the initial rise. According to Kotak Institutional Equities, cement prices in the east fell by 3 per bag (of 50 kilograms each) in March from two years of high of 356 in February.

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