Across India's cement industry, a quiet hope is taking shape: that a fall in the price of distant crude oil will eventually travel down through petcoke and coal to the kilns where cement is made, and restore margins that have been thinning. A brokerage's view, reported this week, holds that this relief will come, but slowly, as a lagged echo of energy markets rather than an immediate gift. The sector has held its ground through the monsoon season, and the deeper question is whether patience will be rewarded once the second half of the financial year arrives.
Cement Makers Eye Margin Relief in H2 FY27 as Falling Oil Prices Ease Fuel Costs
The relief is expected, but it will not arrive all at once
Mark
So the headline is that cheaper oil helps cement makers. Why does oil matter to cement?
Mimi
Because petcoke and coal are the fuels that run the kilns, and the report expects their prices to follow oil down. Fuel is a big cost line, so even a modest fall would show up in margins.
Mark
But not right away?
Luke
Right, and that's worth underlining. The report says the pass-through will come with a delay. Oil has fallen; petcoke and coal falling is still a forecast.
Mimi
And the report itself says fuel and packaging costs will weigh on the third quarter. The relief is pencilled in for later.
Mark
What's the other support for earnings?
Mimi
Prices. They improved late in the second quarter, and hikes in September and October should carry into the second half.
Luke
Though whether those hikes stick is not something the report shows. It says they're expected to support realisations, which is a projection.
Mark
And demand?
Mimi
Volumes grew 7.2 per cent in Q2 across the companies covered, and demand growth is put at 8 to 9 per cent. The east was the weak spot because of monsoon flooding.
Luke
Keep in mind this is one brokerage's view, and the 7.2 per cent applies only to the companies it covers, not the whole industry. Nothing here tells us how big the earnings recovery will be, only that Systematix calls it sharp.
Mark
So what should a reader watch?
Mimi
The third-quarter results, to see how much fuel and packaging costs bite, and whether petcoke and coal prices actually soften.
Der Puls
- Fuel and packaging costs are expected to press hard on third-quarter profits before any relief is felt.
- Eastern markets have gone quiet under prolonged monsoon flooding while other regions are pulling demand upward.
- Producers are leaning on September and October price increases to hold realisations steady through the second half.
- Analysts see a sharp earnings recovery ahead, but the forecast depends on fuel costs finally falling and the Q3 results proving it.
Across India's cement industry, a quiet hope is taking shape: that a fall in the price of distant crude oil will eventually travel down through petcoke and coal to the kilns where cement is made, and restore margins that have been thinning. A brokerage's view, reported this week, holds that this relief will come, but slowly, as a lagged echo of energy markets rather than an immediate gift. The sector has held its ground through the monsoon season, and the deeper question is whether patience will be rewarded once the second half of the financial year arrives.
Cement makers in India are being told to look for a stronger second half of the financial year, and the source of that hope lies far upstream, in the global price of oil. A Systematix Group report, carried by ANI on November 12, argues that the recent sharp drop in oil should bring down the cost of petcoke and coal, the fuels that feed the kilns, and restore profitability from the second half of FY27.
The quarter just ended held up well. Volumes across the companies the brokerage covers rose 7.2 per cent year on year, helped by both higher sales and better realisations, the prices companies actually receive.
The cost relief will not come all at once. Cheaper oil reaches fuel costs with a delay, and that lag means fuel and packaging costs are likely to weigh on third-quarter profits. Better selling prices, including increases made in September and October, and easing energy costs are expected to carry the gains into later quarters.
Demand, the report suggests, remains supportive, driven by infrastructure, housing and post-monsoon construction. The east, however, stayed subdued through flooding while the north, south and west grew more strongly.
The forecast rests on expectation rather than reported results. The fall in fuel costs is something that should happen, not yet something that has. The third-quarter numbers will show how quickly the relief arrives.
Cement makers in India are being told to expect a better second half of the financial year, and the reason sits well upstream of any construction site: the price of oil. A report from the brokerage Systematix Group, carried by the news agency ANI on November 12, argues that the recent sharp drop in global oil prices should pull down the cost of petcoke and coal, the two fuels that feed the industry's kilns, and that this will help restore profitability in the second half of FY27.
The starting point is a quarter that held up well. According to the report, the cement sector was resilient in the second quarter of FY27, with volumes across the companies Systematix covers growing 7.2 per cent compared with the same quarter a year earlier. Both higher sales volumes and better realisations, meaning the price companies actually get for what they sell, contributed to the rise in revenue.
The relief on costs will not arrive at once. The report says the effect of cheaper oil should gradually show up in fuel costs, but with a lag. In its words, as oil prices fell sharply in recent weeks, petcoke and coal prices are expected to follow with a delay. That timing matters for the next set of results. Systematix expects fuel and packaging costs to remain a near-term worry and to weigh on profitability in the third quarter of FY27. The easing in energy costs, together with better selling prices, would then help in the quarters that follow.
Pricing is the second leg of the argument. Cement prices improved toward the end of the second quarter, and the report notes that price increases put through in September and October are expected to support realisations across the second half of FY27. So the brokerage is leaning on two things moving together: input costs coming down and selling prices holding at higher levels.
Demand, the report says, should stay supportive. It points to infrastructure spending, housing demand and a pickup in construction activity after the monsoon as the forces likely to drive cement consumption in the coming months. The picture is not uniform across the country, though. Demand in the eastern market stayed subdued because of prolonged monsoon conditions and flooding, while the northern, southern and western markets saw stronger demand.
On that basis, Systematix remains positive on the sector. It cites demand growth of 8 to 9 per cent, improving pricing discipline among producers and the expected moderation in fuel costs, and says these should support a sharp earnings recovery in the second half of FY27.
The forecast rests on a brokerage's expectations rather than on reported results, and the pass-through from oil to petcoke and coal is described as something that should happen, not something that has. The third-quarter numbers, with fuel and packaging costs still pressing, will be the first test of how quickly the relief arrives.
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
The brokerage remains constructive on cement, expecting a sharp earnings recovery in H2 FY27.— Systematix Group report (paraphrased)
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