Cement stocks gain up to 20% as crude oil falls to 3-week lows; brokerage sees demand picking up

Amid declining crude oil prices, the cement companies’ stocks went up to 20 per cent on the BSE during Wednesday’s trading session, bouncing back from previous week's lows.

Major cement company stocks such as UltraTech Cement, Ambuja Cements, ACC, Dalmia Bharat, India Cements, Ramco Cement and Shree Cement surged between 2-3 per cent intraday today.  

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Meanwhile, JK Cements, Orient Cement and Sanghi Industries stocks soared 4 to 6 per cent. In comparison, the S&P BSE Sensex was up 1.47 per cent at 56,597 points at around 01:35 PM. 

While a 20 per cent spurt was seen in Sagar Cements share.

The crude oil price softened to nearly 30 per cent after hitting multi-year highs last week with Brent crude trading at low of $98.4 per barrel on Wednesday as de-escalation talks between Russia-Ukraine continue. Also, Chinese lockdown in select provinces over outbreak of Covid-19 triggered fuel demand concerns.  

Cement demand is slowly picking up after a weak December-end quarter of FY22, backed by traction in rural and infra demand. However, Year-on-Year (YoY) demand is likely to contract by 4-6 per cent in Q4FY22, given the strong base of last year, Nirmal Bang said. 

Cement prices remain flat in March 2022, which is surprising given the backdrop of sharp uptick in coal/petcoke prices, the brokerage added, expecting cement companies to pass on the increased costs to consumers through price hikes.  

Overall, all-India cement prices are up by Rs 2/bag on MoM basis (+0.7%) and Rs 7/bag on YoY basis (+2%) at Rs 358/bag, as compared to Q3FY22, cement prices are just 2% higher in Q4FY22, it said. 

Given the elevated coal and petcoke prices, the brokerage believe that margin contraction can be substantial, and cement companies will not be able to breakeven even at the EBITDA level. It expects significant pricing action from cement companies once the high-cost fuel inventory starts hitting the bottom-line. 

With ‘positive’ outlook on the sector, the brokerage believes that desperate situations call for desperate measures and the industry will pass on the increased cost burden to users. Ultratech, Birla Corp, JK Cement, JK Lakshmi, Nuvoco Vistas and Sagar Cements as its top picks in the sector.