Cement industry margins are expected to contract further by over Rs 100 per MT to below Rs 880 per MT in the second quarter of the current financial year on a quarter-on-quarter (QoQ) basis. A report has stated that the margins are likely to recover in H2FY27 if the West Asia turmoil subsides.
A report by HDFC Securities noted that cement prices are not expected to go up in the current quarter on a QoQ basis, as demand softens with monsoon progressing. However, fuel cost pressures will continue to build QoQ along with the seasonal op-lev loss.
“The West Asia turmoil has driven up coal/pet coke consumption prices in Q1FY27E and these are expected to peak in Q2FY27E, in our view. We expect the recent surge and then a cool-off in PVC resin prices globally to result in the cement industry’s packaging cost peaking by Q1FY27,” the report mentioned.
Cement Demand Trends
Cement demand remained volatile during the quarter with muted offtake in May. A delayed monsoon helped better offtake in June, the report added. The traction on cement pricing remained sub-optimal amid rising energy and packaging cost environment.
“Cement prices rose a modest around 2 to 3 per cent QoQ across regions. We estimate aggregate volumes for our coverage universe to rise by around 7 per cent YoY, implying around 10 per cent QoQ seasonal decline. On the realisation front, we estimate 2.5 per cent QoQ average NSR rise (flattish YoY) for our coverage universe,” the report noted.
HDFC Securities said that it remains positive on long-term demand, which should also drive realisation. This, along with the expected cost cool-off, should lead to margin rebound H2FY27E onward, the report pointed out. The report added that its coverage universe will deliver around 8.5 per cent volume CAGR over FY26-28E. |
