MOFSL expects hike in cement sales volume in Dec

Hyderabad According to the Cement report of Motilal Oswal Financial Services Limited (MOFSL), cement demand has started picking up from the second half of December 2021, after the volume decline in November 2021. MOFSL expects a YoY improvement in demand in December 2021, across regions excluding East India. Demand should improve further from January 2022, with a pickup in government infrastructure activities. Historically, the cement demand in January has been 4 per cent higher than December. Growth in industry volumes in FY22 should be at 8.6 per cent YoY.

Cement prices have been under pressure in Nov-Dec 2021, led by a sharp volume decline in Nov 2021, and volume push at the year-end by a few key players. The industry will be in a better position to implement price hikes from January 22 onwards.

Pet coke or imported coal prices declined in the last two months from peak levels. This will reduce concerns of a steep increase in operating costs. The average fuel cost for the industry should increase by Rs250-300/t in FY22. MOFSL expects the industry to witness peak fuel costs in 4Q of FY22 and there should be gradual reductions post that.

Based on coal/pet coke price trends, average spreads (Cement price net of taxes, RM cost, energy cost, and freight cost) for companies under the MOFSL coverage in 3Q of FY22 are lower than its 3Q FY21/2Q FY22 average. After the recent price decline, spread in Dec'21 seems to be the lowest since Mar'19.

Cement demand is expected to rise clinker capacity additions over FY21-24, which should lead to an improvement in clinker utilization and profitability for the industry. MOFSL also expects clinker utilization to be more than 90 per cent over Jan-Mar'22. This will boost the pricing power of manufacturers.