Cement demand is expected to increase by 5 per cent this fiscal against 1.2 per cent last year, largely driven by a revival in demand from the infrastructure segment, mostly road and irrigation projects, and the housing segment.
Domestic cement production fell by 1.2 per cent year-on-year to 279.8 million tonnes last fiscal for the first time in the last decade. In fact, sales volume were down 9 per cent between November 2016 and March due to the demonetisation impact. However, since April, it has recovered to register a growth of 17 per cent. With rising demand, cement prices have also increased across most markets on the back of a better supply-demand scenario and support prices, with operational cost rising.
Sabyasachi Majumdar, Senior Vice-President, ICRA Ratings, said that while cement plants in the northern region are likely to pass on the rising sosts of power, fuel and freight, the profitability of cement plants in other regions may depend on the sustainability of higher prices.
The slowdown in the pace of new capacity addition may boost capacity utilisation and cement prices going forward, he added.
Input costs up Energy and freight costs have been rising on the back of an increase in the prices of pet coke, coal and diesel. Though pet coke prices have softened, they are still higher by about 60 per cent compared to last year.
Given the large usage of pet coke across companies and the low-cost pet coke inventory with companies fast depleting, the full impact of higher pet coke prices will start eating into profits. While diesel prices declined by about 6 per cent month-on-month in April, they are higher by about 13 per cent compared to last year.