India’s cement sector may soon face pressure as fuel costs continue to increase. The latest rise in energy prices could reduce cement margins in the coming months. Experts say the problem may affect cement sector profitability even though demand for cement remains strong.
The increase in fuel costs mainly comes from tensions in West Asia. These tensions have pushed up global energy prices. As a result, both pet coke price and coal price have moved higher.
Imported pet coke price has increased by about 11% in a month. It has reached nearly $135 per tonne. In February, the price stayed close to $120 per tonne. At the same time, imported coal price has risen around 7% and is now about $110 per tonne.
Fuel is a major expense for cement companies. It usually accounts for around 30 to 40% of the total cost of making cement. Because of this, any increase in fuel costs can quickly affect cement margins.
For now, the impact may not be seen immediately. Most cement companies keep fuel stock for about 30 to 45 days. This stock helps them manage short term price increases. Because of this, the March quarter may not see a big impact.
However, if fuel costs stay high, the pressure may appear in the next quarter. Analysts say that if pet coke price stays near $135 per tonne, earnings could fall by about Rs. 50 per tonne in the first quarter of FY27.
Experts also compare the situation with FY23. During that time, fuel costs increased sharply after the Russia Ukraine conflict. Cement companies saw strong pressure on cement sector profitability because energy costs rose quickly.
To deal with rising fuel costs, companies may increase cement prices. Some market checks show that cement producers may raise prices by about Rs. 10 per bag if fuel costs remain high. This step may help protect cement margins.
Demand for cement remains healthy. Construction activity in housing and infrastructure projects continues to support the market. Reports from dealers show that cement demand improved in February and may stay steady in March.
At the same time, prices vary in different regions. Some markets saw price increases of Rs. 5 to Rs. 10 per bag in February. However, a few companies later reduced these prices to maintain sales.
Competition also remains strong, especially in southern markets. A Rs. 10 per bag price increase announced earlier was later withdrawn due to weaker demand in the trade market.
Recent quarterly results already show how pricing changes affect cement sector profitability. Prices dropped in the December quarter as companies cut rates and increased bulk sales, even though demand remained strong.
The cement sector now faces a mixed situation. Demand is stable, but rising fuel costs may reduce cement margins. If pet coke price and coal price continue to rise, cement companies may face pressure on profits in the coming quarters.
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