Cement prices may fall 1-3% on rising competition, falling input costs: Crisil Report

After clocking a 4 per cent compound annual growth rate over the past four years, cement companies are likely to cut prices marginally by 1-3 per cent this fiscal despite healthy demand, due to the increasing competition, according to a report.

Cooling input costs will also help cut retail prices, Crisil Ratings said in a report on Tuesday.

The cement prices hit an all-time high of Rs 391 per 50/kg bag last fiscal.

The record price run-up was due to the disruptions caused by the pandemic, followed by a sharp surge in input costs, especially thermal coal, further aggravated by the Russian invasion of Ukraine in February 2022, the report noted.

But heightening competition and softening input costs are set to reverse the trend, and retail prices are set to fall by 1-3 per cent, the report said, noting prices have already moderated since early 2023 on the back of a gradual softening of energy costs and manufacturers' efforts to gain market share in a seasonally strong fourth quarter.

Prices fell around 1 per cent to Rs 388/50 kg bag on average in the March quarter sequentially, despite high-cost inventory. But on an on-year basis, prices have remained elevated.

The rising competitive intensity can be gauged from the fact that for the first time in several years, there were no pre-monsoon price hikes in April and May despite steady demand. The drive to push market share is evident from the top five players who control 55 per cent volume share last fiscal compared to 49 per cent pre-pandemic.

Hetal Gandhi, a director at the agency, expects demand growth to be strong at 8-10 per cent year-on-year this fiscal.

This, however, will not propel prices up. On the contrary, prices are set to decline around 2 per cent year-on-year to Rs 382-385/bag, pulled down also by relatively moderate growth in the trade segment.

Falling inputs costs also favour lower prices, the report said, pointing to the falling Australian coal prices, which declined in the third and fourth quarters by 10 per cent and 36 per cent quarter-on-quarter, respectively, in fiscal 2023 after hitting multi-year highs in August and September 2022.

International pet-coke prices have also eased beginning the second quarter of fiscal 2023 and declined 13 per cent year-on-year in the second half of fiscal 2023 in tandem with crude prices.

Domestic pet-coke prices have followed suit, too. Also, domestic pet-coke, international pet-coke, and Australian coal prices fell a further 17, 23 and 14 per cent, respectively, in May compared to March 2023.

Petcoke, a crude derivative and a key input in cement production is expected to correct further, in line with crude prices that fell 27 per cent year-on-year between April and May and are expected to fall further as supply conditions improve.

Koustav Mazumdar, an associate director at the agency, feels after the highs of $344/tonne in 23, Australian coal prices are seen falling to $150-200/tonne this fiscal.