Cement Prices Set To Rise Again As Cost Pressures Intensify: CRISIL Report

Cement manufacturers have started to pass on rising costs across regions in April because of the disruptions caused by ongoing Russia-Ukraine war

Surge in power and fuel expenses coupled with high cost of road freight that accounts for 50 per cent of cement transport have made cement more costly, said CRISIL. Image: Getty

New Delhi: Domestic cement prices are set to climb around Rs 50 after rising to Rs 390 per bag over the past 12 months.

According to a CRISIL news release on Wednesday, cement manufacturers have started to pass on rising costs across regions in April because of the disruptions caused by ongoing Russia-Ukraine war.

The release said that apart from cement prices, Brent crude oil rates rose 21 per cent month-on-month to average $115 per barrel in March and 24 per cent sequentially in the closing quarter of the last financial year. The crude oil rates were up 79 per cent year-on-year.

Global petcoke prices, which had begun easing between December 2021 and February 2022, also rose 43 per cent quarter-on-quarter in March.

Domestic petcoke prices from Gujarat ex-refinery have also risen, 26 per cent month-on-month in March and 21 per cent month-on-month in April.

The prices of international coal have surged due to various disruptions.

The headwinds are supply constraints due to the Russia-Ukraine conflict, weather disruptions in the key mining areas of Australia, and Indonesia’s ban on coal exports to meet domestic demand.

As a result, prices of Australian coal (up 157 per cent year-on-year in FY22) have surpassed the $300-per tonne mark in March and were 35 per cent higher sequentially in the fourth quarter.

CRISIL report said that due to the surge in power and fuel expenses coupled with high cost of road freight that accounts for 50 per cent of cement transport have made cement more costly.

Diesel rates have been hiked by Rs 25 a litre, while retail diesel prices have been increased 14 times since mid-March, taking the total increase to Rs 10 per litre. All these have aggravated the cost pressure and cast a shadow on demand, according to the report.

Hetal Gandhi, director, CRISIL Research, said, “Demand increased 20 per cent year-on-year in the first half of FY22, but experienced an unexpected slowdown in the second half due to unseasonal rains, sand issues and labour unavailability, which pulled it down to 7 per cent year-on-year growth for the full fiscal. In FY23, cement volume growth will be stable at 5-7 per cent, driven by affordable housing demand from tier-2 and tier-3 cities, along with infrastructure. However, high construction costs will limit the demand uptick.”

Koustav Mazumdar, associate director, CRISIL Research, said, “Geopolitical disruptions intensified cost pressures in the fourth quarter of FY22. While an increase in prices is inevitable to partially mitigate the impact of increase in power, fuel and freight costs (50-55 per cent of total costs), there will still be a dent on profitability. Our estimates indicate a margin contraction of 400-500 basis points (bps) in FY22 and a further 100-200 bps this fiscal year.”

The report also noted that the fourth quarter of FY22 saw a marginal uptick in costs sequentially because of low-cost inventory.