Cement price breather

Cement and steel rebar manufacturers may share the same clients, as they both serve the construction industry, but they couldn’t be more different in terms of efficiencies and long-term survival. The steel rebar industry is perennially in trouble, facing numerous long-standing challenges, including a large number of informal players flooding the market with cheaper products, unchecked smuggling from Iran undermining domestic demand, corruption at the border, misdeclaration/under-invoicing (where steel products are falsely declared as scrap), high energy costs and finally the ultimate nail in the coffin in the form of demand not picking up. While the cement industry has a proven track record of preparing and remaining profitable amid weak demand, steel mills are buckling under the pressure. According to industry leaders, many mills have shut down.

This hasn’t happened to the cement industry and for good reason. The fact is, that the cement industry has worked hard on getting where it is now. The investment choices made over the years to stay competitive, prioritizing operational and cost efficiencies, and maintaining a contingency plan through the diversification of export markets when domestic demand falters are all reasons why the cement industry is making profits even when demand declines. Where steel makers import scrap from international suppliers to make billets and rebars and as such have no alternative to these imports, which also means their costs are pegged to the dollar, cement manufacturers have been far-sighted enough (or lucky enough?) to consider procuring coal supplies from sources other than international markets. In recent years, coal has been sourced domestically as well as from Afghanistan. At the same time, they have invested in waste heat recovery units and alternative captive power such as solar to cut down on their production costs and reduce reliance on grid power.

According to the latest readings from PBS maintained Large Scale Manufacturing Index, steel rebar production has dropped nearly 29 percent in the Jul-Nov period vs. last year. Organic demand from development spending by the public sector and private sector construction have been laggards affecting nearly all the industries that feed construction. Meanwhile, cement production is down 10 percent per the LSM. In fact, other construction-allied industries have suffered far more in terms of demand offtake compared to cement. This is because the cement industry regularly exports a portion of its production. In 1HFY25, exports were 21 percent of all sales.

One of the main reasons cement companies have remained profitable despite low demand is their strong pricing power. There is no arguing with the price trajectory that has only been looking up since FY20, with short bursts of incremental declines, only to begin their upward ascent again. Between 2014 and 2020, cement prices fluctuated between Rs500 and Rs600 per bag, occasionally reaching Rs650 before falling back. However, since then, prices have been steadily increasing, crossing Rs1400 just a few months ago. These consistently rising prices have allowed cement manufacturers to absorb the rising production costs while still maintaining healthy(ish) profits. Though capacity utilization has been steadily declining, the fact that cement manufacturers can adjust their sales mix and sell excess cement to international markets wherever markets are receptive, revenues have not fallen far enough to ring alarm bells.

Such optimism must come with a healthy dose of caution though. In January 2025, cement prices in various markets began to decline. Either this is a one-off—since prices have only come down in the past three weeks—or this sets in motion a new trend where prices keep declining. It may be too soon to say that the trajectory of prices will change but there is no doubt that this breather would be well-received by markets. If it continues though, cement manufacturers will have to go back to the drawing board to boost offtake.