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Crude Oil Scenario: Volatility Likely to Persist in the Near Term (3–4 Months)

Escalating geopolitical tensions between Iran, Israel, and the United States could drive crude oil prices higher, which may indirectly impact the Indian cement sector through rising fuel costs. Cement manufacturing is an energy-intensive process, with power and fuel accounting for nearly 25–30% of total production costs. Currently, cement companies rely heavily on imported fuels such as US petcoke, which constitutes around 50–60% of the industry’s fuel mix, making the sector sensitive to global energy price movements.

Base Case (~$90/bbl crude)

Under a base case scenario of ~$90/bbl crude, the sector is expected to sustain healthy demand growth of ~7–8%, translating into incremental volumes of ~32–35 MnT. Input cost inflation remains manageable, enabling companies to maintain stable realisations and EBITDA per tonne, with no meaningful impact on sector profitability.

Stress Scenario (~$110/bbl crude)

In a stress scenario with crude at ~$110/bbl, the sector could face moderate margin pressure. Higher diesel and pet coke prices would increase logistics and kiln fuel costs, while elevated inflation could slightly temper construction activity. Cement demand growth could moderate to ~6.5–7%, implying ~3–4 MT lower incremental demand versus the base case. Realisations may face INR 40–60/tonne pressure, while operating costs could rise by INR 50–60/tonne, leading to an EBITDA impact of ~INR 50–60/tonne.

Severe Shock Scenario (~$130/bbl crude)

In a severe shock scenario with crude at ~$130/bbl, cost pressures would intensify as higher diesel and fuel costs significantly increase production and freight expenses. At the macro level, higher inflation could moderate GDP growth and construction activity, potentially lowering cement demand growth to ~5.5–6%, resulting in ~6–8 MT lower incremental demand. Realisations may come under INR 80–100/tonne pressure, while costs could increase by INR 70–100/tonne, translating into a potential EBITDA decline of ~INR 80–120/tonne.

While elevated crude prices could exert some pressure on margins, the long-term demand outlook for the cement sector remains supported by strong infrastructure spending, housing demand, and sustained government capex. Companies are likely to partially mitigate the cost impact through fuel mix optimisation, operational efficiencies, and calibrated price increases. However, under stress or severe shock scenarios, relatively smaller and regionally concentrated players such as Birla Corporation, Nuvoco Vistas and The Ramco Cements could face comparatively higher pressure on margins and profitability versus larger and more diversified players like UltraTech Cement, ACC, Ambuja and Shree Cement.
 

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