Cement sales fizzle out as near-term headwinds weigh on demand

An analysis of the data by JM Financial Institutional Securities Ltd shows that volumes transported through railways reported a 19% month-on-month (m-o-m) drop in November. “In comparison to last year, transported volumes in November were down 12% as the volumes witnessed headwinds in the regions of central, south and East,” the brokerage house said in a report on 1 December.

Extended monsoon in some parts of the country is said to be one of the factors dampening cement demand.

“Few stockists/marketing personnel attribute the decline in demand to unseasonal rainfall in many parts of the country, continued sand crisis in the east region and eastern Uttar Pradesh, auspicious marriage season after the COVID-19 outbreak last year, better volumes in Oct’21 on expectations of price hikes, and sudden price hikes,” analysts at Motilal Oswal Financial Services Ltd said in a recent report. They pointed out that sales volumes in November seem to be lower than the historical average of a 6% m-o-m decline for the month.

The fourth quarter of the financial year is usually strong for the sector as construction-related activities pick-up. So, many analysts expect demand to meaningfully improve after the December quarter. However, weak demand in third quarter could mean rollback of cement price hikes, keeping operating margins under pressure. In fact, dealer channel checks by various brokerages point to partial correction in cement prices in the markets of north, south and west India.

Meanwhile, some respite could come from the ongoing moderation in prices of petroleum coke and coal, but their impact on margins would reflect with a lag.