The early onset of the monsoon plays spoilsport for cement demand and prices. Also, a temporary rise in power and fuel costs (P&F) is on the cards for cement makers in the June quarter (Q1FY26). The cost of imported petroleum coke (pet coke) saw a sudden spike in March. A surge in demand by Chinese companies in anticipation of higher tariffs led to pre-booking, which translated into higher procurement costs.
P&F costs are estimated at 30-35% of the cement sector’s total production cost. Petcoke, which is derived from oil refining, is a key input material for cement manufacturers. Typically, cement companies import petcoke and stock fuel inventories for two-three months. So, the impact on profitability due to movement in fuel costs comes with a lag. Although spot international petcoke cost has now cooled off to $104/tonne from around $122/tonne in March, cement companies with a relatively higher reliance on this fuel could feel the heat in Q1FY26.
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“On average, this should translate into a P&F cost/tonne increase of ₹75 for Indian cement companies during Q1FY26 on a sequential basis. North-focused cement makers Shree Cement Ltd and JK Cement could be most hurt,” said Kunal Shah, analyst at DAM Capital. The fuel mix of Shree Cement and JK Cement comprises 95% and 70% petcoke, respectively. On the other hand, UltraTech Cement Ltd should be least affected given material exposure to imported coal, where cost trends were favourable in Q4FY25, he added. (See chart 1)
To counter fuel cost volatility and reduce carbon footprint, cement companies have been enhancing their cost efficiency by investing in green energy and waste heat recovery systems.
For instance, Ambuja eyes cost savings of ₹500-550/tonne by FY28 and has achieved around ₹150-170/tonne in FY25. Further savings of ₹100/tonne is likely in FY26. Dalmia Bharat Ltd expects to meet half of its ₹150–200/tonne cost savings target in FY26. These are steps in the right direction, but they would yield outcomes gradually.
Cement prices
However, in the current backdrop, if cement prices sustain at higher levels, companies could get some cushion from this cost bump. In June so far, cement prices in the trade segment at pan-India level are up by ₹2/bag month-on-month to ₹358/bag, according to Nomura Global Markets Research.
One cement bag weighs 50kg. This is largely led by a ₹19/bag hike in the south, although cement prices are marginally down by ₹2-5/bag in other regions. In Q1FY26 so far, the average pan-India trade segment cement price is up ₹12/bag sequentially to ₹356/bag, the Nomura report said on 4 June. The brokerage cautions that pricing indiscipline amid industry consolidation will likely keep trade prices range-bound.
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Dealer channel checks by brokerages show that cement demand has been in the low single digits in Q1FY26 so far. Q1 will be followed by a seasonally weak Q2 as construction activities tend to be dull during the monsoon season. So, depending upon the pace of demand recovery, any meaningful improvement in cement prices could happen in H2FY26.
Large cement stocks have given mixed returns in 2025 so far. On a one-year forward EV/Ebitda, the sector is trading at a valuation multiple of 20.6x, which is around a 25% premium to the long-term average, according to Motilal Oswal Financial Services. The sector’s valuation declined around 30% by March 2025 from its peak in June/July 2024 due to weaker-than-estimated demand growth, continuing pricing pressure, and an increase in fuel prices, it said in a report. For rich valuations to justify realisations, they have to meaningfully improve.
Key takeaways
- The early arrival of the monsoon has weakened cement demand, while higher fuel and power costs—especially petcoke—are set to squeeze profit margins.
- Although international petcoke prices have cooled slightly, the earlier spike to $122/tonne in March will still weigh on cement makers who are highly dependent on petcoke.
- Companies like Ambuja and Dalmia Bharat are ramping up energy efficiency measures to offset cost hikes.
- Cement prices have risen by ₹12/bag sequentially, helped by a sharp ₹19/bag increase in the south, but pricing volatility due to industry consolidation could cap further gains.
- Despite mixed returns in 2025, cement stocks remain expensive, trading at a 25% premium to historical averages.
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Source:https://www.livemint.com/industry/infrastructure/cost-pinch-coming-cement-companies-q1-power-fuel-june-petcoke-monsoon-11749361189181.html