Indian Cement Companies May Roll Back Price Hikes Due to Weak Demand: Nuvama Report

In a recent report, Nuvama Institutional Equities suggests that Indian cement companies might need to reverse their September price hikes because of continued weak demand. The report states, “We believe price hikes may have to be rolled back by month-end due to weak demand. Even so, demand is likely to pick up from Q3FY25, which should support prices somewhat.”

With weak demand expected to persist through the first half of FY25, substantial price hikes are unlikely. The report highlights regional price variations, with the overall trend remaining downward. Many dealers expect a recovery in prices only in the later part of the second half of FY25.

The current scenario has raised concerns about the sector’s ability to maintain pricing power in the short term. Cement demand is projected to improve from Q3FY25 onwards, driven by the post-monsoon recovery in construction activities, which is expected to support prices and provide some relief to the sector.

The continued drop in cement prices in August 2024 was due to subdued demand, exacerbated by the monsoon season, unavailability of labor, and a slowdown in construction activities. In the East, prices fell by Rs 5-7 per bag in August, significantly affected by sluggish demand due to labor shortages, heavy rains, and a slowdown in construction. The outlook remains bleak, with demand expected to pick up only after Durga Puja in H2FY25.

Although a price hike of Rs 20 per bag was announced in early September, dealers expect it to be rolled back due to persistently weak demand. The Southern region saw the sharpest decline in prices, with a drop of Rs 10 per bag in August, reaching multi-year lows. Rains contributed to the demand slump, and dealers anticipate an improvement in Q3FY25. While prices appear to have bottomed out, the region has seen some price hikes: Rs 20 per bag in the non-trade segment and Rs 30 per bag in Karnataka. However, the absorption of the Rs 20 price hike in the trade segment remains uncertain.

Demand in the North was negatively impacted by the monsoon and a slowdown in construction activities due to liquidity constraints. Prices dropped by Rs 3-5 per bag in August. A modest price hike of Rs 15 per bag was implemented in early September, but dealers expect this to be reversed as demand remains weak.

The Central region experienced subdued demand in August due to local festivals, issues with sand mines, and the monsoon. Prices remained flat month-on-month, but a price hike of Rs 25-30 per bag was announced in Chhattisgarh. However, dealers anticipate a recovery in demand by mid-October.

In the West, prices were flat in August, with demand remaining subdued. Both demand and prices are expected to improve only after the second quarter of FY25. Industry experts maintain a cautious stance on the sector, reiterating that cement companies may struggle to implement meaningful price increases in the near term. While cost efficiency measures and softening power and fuel costs could help mitigate the negative impact of weak realisations, the overall sentiment in the cement sector remains cautious.