Some things in an industry recover the way weather does: slowly, and first in the sky before the ground feels it. Here, a brokerage analysis suggests Indian cement makers may be approaching the end of a hard stretch, with profitability expected to climb in the second half of the fiscal year as falling oil prices gradually ease the cost of the coal and petroleum coke that fire their kilns. The turn is not yet felt in the books, because fuel costs follow oil with a lag, and the quarter in between is likely to be harder still.
Cement Makers Eye Margin Relief as Falling Oil Prices Ease Petcoke and Coal Costs
The relief is not expected to show up immediately in manufacturers' books.
Mark
So what is the core claim here?
Mimi
That cement makers' profits should recover sharply in the second half of FY27, because fuel costs are expected to fall and cement prices have firmed.
Mark
Why does oil matter to cement?
Mimi
Petcoke and coal are key fuels for making it. The report expects those to track oil downward, but with a delay.
Luke
Worth noting that's an expectation, not something that has happened. The report says oil fell sharply in recent weeks; it doesn't say petcoke and coal have fallen yet.
Mark
And the near term?
Mimi
Third quarter is the pinch. Fuel and packaging costs are expected to weigh on profitability before relief arrives.
Mark
What about demand?
Mimi
Volumes for the covered companies grew 7.2 per cent year-on-year in Q2, and the report cites 8 to 9 per cent demand growth. The east was weak because of prolonged monsoon and flooding.
Luke
Keep in mind the 7.2 per cent covers only the companies this brokerage tracks, and the 8 to 9 per cent is the report's own framing. This is one brokerage's view, and it hasn't put a number on the earnings recovery in what we have here.
Mark
So what decides whether it plays out?
Mimi
How fast fuel prices follow oil, and whether the September and October price hikes stick.
Der Puls
- Sales volumes rose 7.2 per cent across the covered companies, yet the sector's margins remain squeezed by expensive fuel.
- Petcoke and coal prices are expected to follow crude oil downward, but only after a delay that leaves the next quarter exposed.
- Fuel and packaging costs threaten to weigh on the third quarter, testing how much margin the industry can hold in the meantime.
- Price hikes from September and October are being relied upon to lift realisations, with pricing discipline improving across the sector.
- Eastern markets remain subdued after prolonged monsoon flooding, even as northern, southern and western demand strengthens.
- Analysts expect a sharp earnings recovery in the second half of FY27, provided fuel prices actually fall as anticipated.
Some things in an industry recover the way weather does: slowly, and first in the sky before the ground feels it. Here, a brokerage analysis suggests Indian cement makers may be approaching the end of a hard stretch, with profitability expected to climb in the second half of the fiscal year as falling oil prices gradually ease the cost of the coal and petroleum coke that fire their kilns. The turn is not yet felt in the books, because fuel costs follow oil with a lag, and the quarter in between is likely to be harder still.
A brokerage report from Systematix Group is telling investors that the hardest period for Indian cement makers may be nearly over, though the relief has not arrived yet. The firm expects profitability across the sector to improve significantly in the second half of FY27, supported by lower global oil prices and firmer cement prices.
The second quarter of FY27 gave a steady base. Sales volumes across the companies the brokerage covers grew 7.2 per cent from a year earlier, and revenue rose both from selling more cement and from better prices on each sale.
The difficulty lies in timing. Petcoke and coal, the main fuels for cement kilns, are expected to follow oil prices downward, but with a delay. That lag means the third quarter is likely to remain strained, as fuel and packaging costs continue to press on margins. Relief is expected in the quarters after.
Pricing offers the second support. Prices improved toward the end of the second quarter, and price hikes taken in September and October should help realisations through the second half. The report also credits improving pricing discipline across the industry.
Demand, the report suggests, should remain supportive, driven by infrastructure spending, housing and a post-monsoon recovery in construction, with growth put at 8 to 9 per cent. The picture varies by region: the eastern market stayed subdued after prolonged flooding, while the north, south and west grew more strongly.
Systematix remains constructive. Its optimism rests on demand, pricing and easing fuel costs. What will matter now is how quickly coal and petcoke prices actually follow oil lower, and how much the third quarter's costs erode margins before that happens.
A brokerage report out of Systematix Group is telling investors that the hardest stretch for Indian cement makers may be nearly behind them, though not quite yet. The report expects profitability in the sector to improve significantly in the second half of FY27, helped by falling global oil prices and firmer cement prices.
The starting point is the second quarter of FY27, which the report describes as resilient. Across the companies the brokerage covers, sales volumes grew 7.2 per cent compared with the same quarter a year earlier. Revenue growth came from two sources at once: more cement sold, and better prices realised on each sale.
The cost story is where the report looks ahead. Petcoke and coal are key fuels for cement production, and Systematix expects their prices to follow oil downward. In the report's words, oil prices fell sharply in recent weeks, and it expects petcoke and coal to follow with a delay. That lag matters. The relief is not expected to show up immediately in manufacturers' books.
Because of the delay, the third quarter of FY27 is flagged as a difficult one. The report expects fuel and packaging costs to remain a near-term concern and to weigh on profitability in that period. The easing of energy costs, combined with better selling prices, is expected to help in the quarters that follow.
Pricing is the second support. Cement prices improved toward the end of the second quarter, and the report notes that price hikes taken in September and October should help realisations through the second half of the fiscal year. The brokerage also points to improving pricing discipline across the industry as a reason for its optimism.
On demand, the report expects conditions to stay supportive. It names infrastructure spending, housing demand and a recovery in construction activity after the monsoon as the likely drivers of consumption in the coming months. It puts demand growth at a resilient 8 to 9 per cent.
The picture is not uniform across the country. Demand in the eastern market stayed subdued because of prolonged monsoon conditions and flooding. The northern, southern and western markets saw stronger demand.
Systematix summed up its stance by saying it remains constructive on the sector, citing 8 to 9 per cent demand growth, improving pricing discipline and moderating fuel costs, which it believes should support a sharp earnings recovery in the second half of FY27. The thing to watch is how quickly petcoke and coal prices actually follow oil lower, and how much the third quarter's fuel and packaging costs take out of margins before that happens.
Bemerkenswerte Zitate
As oil prices fell sharply in recent weeks, we expect petcoke and coal prices to follow suit with a delay.— Systematix Group report
We remain constructive on the cement sector owing to resilient 8–9% demand growth, improving pricing discipline and moderation in fuel costs.— Systematix Group report
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