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Cement Sector Faces Profitability Pressure Amid Weak Demand and High Costs

The cement sector is expected to face profitability pressures over the next one to two quarters due to elevated input costs and weak demand. Despite price hikes in April and May, sustainability remains uncertain amid subdued demand across regions. A broad-based demand slowdown is attributed to labour shortages from the wedding season, state elections, and reverse migration. While non-trade demand remains resilient, dealers are cautious on the trade segment, and persistently high construction costs may weigh on demand in FY27.

Key Points: Cement Demand Outlook Weak, Profitability Under Pressure

  • Elevated input costs (fuel, packaging, raw materials) weigh on profitability
  • Pan-India cement prices rose Rs 10-13/bag in May but sustainability uncertain
  • Broad-based demand slowdown due to labour shortages, wedding season, elections
  • Non-trade segment resilient, dealers cautious on trade segment
2 min read

Cement demand outlook weak; cost pressures may weigh on profitability over next 1-2 quarters: Report

Cement sector faces profitability pressure over 1-2 quarters due to elevated costs and weak demand, says Systematix report. Price hikes uncertain.

"We remain cautious on the sector's near-term demand outlook, as profitability is likely to stay under pressure over the next 1-2 quarters due to elevated fuel, packaging, and raw material costs. - Systematix Institutional Equities"

New Delhi, May 6

The cement sector is likely to face pressure on profitability over the next one to two quarters amid elevated input costs and weak demand conditions, according to a report by Systematix Institutional Equities.

The report said that despite price hikes undertaken by companies in April and May, the sustainability of these increases remains uncertain due to subdued demand across regions.

The report noted, "We remain cautious on the sector's near-term demand outlook, as profitability is likely to stay under pressure over the next 1-2 quarters due to elevated fuel, packaging, and raw material costs."

The report stated that Pan-India average cement prices rose by Rs 10-13 per bag month-on-month in May, driven by cost-led price hikes. However, the sustainability of these increases remains uncertain amid subdued demand trends.In the southern region, prices rose the most. Key markets like Telangana and Andhra Pradesh saw increases of about Rs 20-25 per bag, while Kerala and Tamil Nadu had smaller hikes of around Rs 10 per bag due to weaker demand. On average, prices in the region went up to Rs 345 per bag from Rs 325 in May.In the northern region, prices increased by about Rs 10 per bag, mainly supported by better demand in Rajasthan. However, Delhi and Punjab saw smaller increases of around Rs 5 per bag. In the east, prices went up by about Rs 14 per bag in parts of West Bengal and Odisha, while Bihar and Chhattisgarh recorded increases of around Rs 9-10 per bag. The central region remained fairly stable, with prices rising by about Rs 7 per bag month-on-month to around Rs 360 per bag. In the western region, the trend was mixed prices increased by about Rs 8 per bag in Mumbai, but planned hikes of around Rs 10 per bag in Gujarat were reversed due to weak demand.The report highlighted a broad-based slowdown in cement demand, attributed to labour shortages linked to the wedding season, state elections and reverse migration for agricultural activities, marking a reversal from the volume growth seen in the previous quarter.

It says, "While pricing remains the primary lever to protect margins, the ability to pass on costs will depend on demand recovery. Persistently high construction costs could also weigh on demand in FY27"

While the non-trade segment is expected to remain relatively resilient, dealers remain cautious on the trade segment.

- ANI

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Reader Comments

P
Priya S
The report is spot-on about the demand recovery being uncertain. With elections in several states, govt spending on infrastructure has slowed down. Also, builders are holding back new projects due to high input costs. The ₹10-13 per bag increase may not sustain if demand doesn't pick up after monsoon. Cement companies need to focus on operational efficiency rather than just hiking prices.
V
Vikram M
Interesting to see regional variations - South seeing biggest hikes while West is reversing increases. Gujarat mein demand weak hai, so companies are struggling to pass on costs. But as someone in real estate, I can say that unless construction costs come down (cement, steel, sand), the common man's dream of owning a home will remain distant. Government needs to intervene on raw material pricing.
S
Sarah B
As someone who follows Indian markets from the US, this is concerning for infrastructure plays too. The report's point about 'persistently high construction costs weighing on FY27 demand' is important. India's housing and infra story is a long-term bet, but short-term headwinds like fuel prices and packaging costs are real. Hope companies manage working capital well.
N
Nikhil C
I think the report is being a bit too pessimistic. While near-term is challenging, demand from affordable housing and rural construction should pick up post-monsoon. Also, with govt focus on housing for all and infrastructure, FY27 might be better. But yes, companies need to hedge fuel costs better. Yeh wedding season ka effect temporary hai! 😊
R
Rajesh Q
Western region reversal in Gujarat hikes shows

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