Recent price increases by Indian cement companies to counter higher energy costs: Fitch Ratings
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Fitch Ratings in its latest report has said that the recent price increases by India’s cement companies will counter higher energy costs while the impact on profitability from a resurgence of coronavirus is likely to be limited. It also expected cement demand to be less affected by restrictions to curb the spread of Covid-19 this time around while larger cement companies' strong profitability in the financial year ended March 31 (FY21) should cushion their financial profiles against downside risks.
According to the report, key energy commodities including petroleum coke, imported coal and diesel which together account for more than 50 percent of cement makers' costs rose sharply, particularly after 3Q FY21. However, it said the impact on cement companies' costs was less apparent in 4Q FY21 as they switched to using lower priced imported coal and benefitted from lower-cost inventories and a lag in adjustments in freight costs.
However, Fitch expects the economic impact of latest restrictions to be less severe than those last year which should drive pent-up demand for cement after the curbs are eased. It believed this should support moderate recovery in cement demand in FY22 from FY21 levels unless stricter or wider restrictions are imposed. It added that recovery after 1H FY21 limited the full-year decline in cement production to 12 percent.
