Softening input costs to make cement cheaper this fiscal: CRISIL

Cement prices are likely to fall by 1-3 per cent in the current fiscal after hitting a record high in 2022-23 amid easing input costs and intensifying competition in the sector as top five manufacturers push to improve their market share, ratings agency CRISIL said in a report.

Prices of cement, a key input for infrastructure development, rose sharply in the past four years. It hit a record high of an average Rs 391 per 50 kg bag during the fiscal 2022-23. The compound annual increase in cement prices in the past four fiscals stand at 4 per cent.

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According to CRISIL, cement prices are set to decline on an annual basis for the first time in the past five years.

The decline in price will be despite a healthy projected growth in demands as the government seeks to push infrastructure development ahead of elections. Demand for cement is likely to be 8-10 per cent higher in 2023-24 when compared with the previous year, as per the Market Intelligence and Analytics (MI&A) research of CRISIL.

“This, however, will not propel prices up. On the contrary, prices are set to decline 2 per cent on-year to Rs 382-385 per bag, pulled lower also by relatively moderate growth in the trade segment,” said Hetal Gandhi, Director – Research, CRISIL Market Intelligence and Analytics.

Cement prices have moderated since early 2023 on the back of a gradual softening of energy costs and efforts of manufacturers to gain market share in a seasonally strong fourth quarter. Prices fell 1 per cent to Rs 388 per bag on average in the fourth quarter of last fiscal sequentially, despite manufacturers carrying high-cost inventory. On an on-year basis, though, prices have remained elevated.

The input costs have declined sharply in the past two quarters and there is increasing competition, especially among the top players. This augurs well for cement consumers.

After the highs of $344 per tonne in fiscal 2023, Australian coal prices are forecast to decline to $150-200 per tonne this fiscal. Dated Brent Crude is also expected to correct over 17% in 2023, with diesel prices falling in tandem with crude oil prices in the latter half of the fiscal.

“Easing coal, petcoke and diesel prices will come as a relief for the cement industry, which was reeling under high costs and deteriorating profitability,” said Koustav Mazumdar, Associate Director – Research, CRISIL Market Intelligence and Analytics.

The heightened 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 this fiscal despite steady demand, CRISIL said.

The push to improve market share is evident from the top five players comprising 55% volume share last fiscal compared with 49% pre-Covid-19, it added.