Demand for cement improves, but cost inflation continues to pinch

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MUMBAI: Analysis of data on cement volumes transported by railways shows strong demand momentum continued into February, national brokerage firm JM Financial Institutional Securities Ltd said in a recent report.

On a month-to-month basis, volumes moved by railways increased 9% in the first half of February, while on an annual basis they increased by more than 20%. For the first half of the January-March quarter, cement volumes increased 16% year-on-year, the JM Financial report said.

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Analysts believe a low base from March of last year, when operations were hit by the pandemic, is likely to boost growth in the fourth quarter.

As demand recovers, cost inflation continues to be a problem for cement manufacturers. Prices for petroleum coke, diesel and coal are heading north. Cement makers, however, have yet to pass the burden of rising costs on to consumers.

Checks carried out by dealers with various brokerage houses showed that cement prices remained stable in early February.

According to Nirmal Bang Securities Ltd, during the first half of February, cement prices were stable in all regions, with minor changes in various cities. However, the expected cost inflation was not passed on to consumers, the domestic brokerage said in a report.

“Based on our channel checks, the price of cement at a pan-Indian level edged down 0.2% month-on-month to Rs332 / sack, mainly due to a drop in around 1% month-over-month observed in the North and Central regions, partly offset by a marginal increase of around 0.1-0.4% month-over-month in the regions West, East and South. Compared to the average price at 3QFY21, the pan-Indian price fell 2% due to a drop of 0.8 to 3.5% in all markets and the maximum drop of 3.5% observed in the eastern and southern markets, “adds the Nirmal Bang report. A bag of cement weighs 50 kilograms.

Although cement manufacturers are trying to partially offset the impact of cost inflation by reducing discounts, the delay in catching price increases indicates erosion in the industry’s operating margin.

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