Cement prices are expected to slip 1-3% this fiscal, after clocking a 4% compound annual growth rate (CAGR) over the past four to a new all-time high of Rs 391 per 50 kg bag last fiscal.

The run-up was due to disruptions caused by Covid-19, followed by a sharp surge in input costs, especially thermal coal, further aggravated by the Russia-Ukraine war.

Now, heightening competitive intensity and softening input costs are set to reverse the trend.

To be sure, 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% 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 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. 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.

Says Hetal Gandhi, Director - Research, CRISIL Market Intelligence and Analytics, “CRISIL MI&A Research expects cement demand growth to be strong at 8-10% on-year this fiscal, the pre-election year. This, however, will not propel prices up. On the contrary, prices are set to decline ~2% on-year to Rs 382-385 per bag, pulled lower also by relatively moderate growth in the trade segment.”

The scenario on the input front also favours lower prices. Australian coal prices¹, for one, declined in the third and fourth quarters (~10% and ~36% on-quarter, respectively) of fiscal 2023 after hitting multi-year highs in August and September 2022.

International petcoke prices² have also eased beginning the second quarter of fiscal 2023, and declined ~13% on-year in the second half of fiscal 2023 in tandem with crude oil prices. Domestic petcoke prices have followed suit, too. Also, domestic petcoke, international petcoke, and Australian coal prices fell a further 17%, 23% and 14%, respectively, in May compared with March, 2023.

Petcoke, a crude oil derivative and a key input in cement production, is expected to correct further, in line with crude oil prices that fell ~27% on-year between April and May and are expected to fall further as supply conditions improve.

Australian coal prices are also expected to correct, with sufficient natural gas stockpiles in the EU, as well as weak industrial activity in China impacting coal demand despite the recent lifting of export ban.

Diesel prices are projected to moderate as well in the latter half of the fiscal as oil marketing companies would have recouped prior losses from cooling crude oil prices.

Says Koustav Mazumdar, Associate Director - Research, CRISIL Market Intelligence and Analytics, “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.”

That said, any rebound in fuel prices, which may affect petcoke and coal prices, would be a key monitorable.

¹ US petcoke- 6.5% sulphur; ² Australian coal-landed f.o.b. prices