Cement sales collapse as near-term headwinds weigh on demand

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As cement plants battle cost inflation with price increases, the demand outlook is a key factor that will decide the fate of recent price increases. And the latest rail freight data doesn’t paint a very precise picture of sales.

Analysis of data by JM Financial Institutional Securities Ltd shows that volumes moved by railways were down 19% month-on-month (mom) in November. “Compared to last year, volumes transported in November were down 12% as volumes faced headwinds in the central, southern and eastern regions,” the brokerage said in a report published on December 1.

The prolonged monsoon in parts of the country is believed to be one of the factors holding back demand for cement.

“Few stockists / marketing staff attribute the drop in demand to unusual rainfall in many parts of the country, the continuing sand crisis in the eastern and eastern region of Uttar Pradesh, to the season. marriages conducive after the COVID-19 outbreak last year, to better volumes in October ’21 on expectations of price hikes and sudden price hikes, ”analysts from Motilal Oswal Financial Services Ltd said in a recent report They pointed out that sales volumes in November appeared to be below the historic average of a 6% month-on-month decline for the month.

The fourth quarter of the year is generally strong for the industry with the resumption of construction-related activities. Thus, many analysts expect a significant improvement in demand after the December quarter. However, weak demand in the third quarter could mean lower increases in cement prices, keeping operating margins under pressure. In fact, checks of distribution channels by various brokerage houses indicate a partial correction in cement prices in the markets of North, South and West India.

In the meantime, some respite could come from the ongoing moderation in petroleum coke and coal prices, but their impact on margins would be reflected with a lag.

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