Surge in Cement Stocks: What’s Behind the Rally?

On Monday, shares of cement companies experienced a significant surge, with stocks like UltraTech, JK Lakshmi Cement, Mangalam Cement, and Shree Cement posting impressive gains of 4% to 9%. UltraTech Cement emerged as the top gainer on the Nifty 50 index, driving the overall rally in the sector.

The sharp increase in cement stocks can be attributed to several factors, particularly a report from brokerage firm Jefferies. In a note released on Monday, Jefferies highlighted that the cement industry is actively seeking price hikes, with plans for an increase of ₹10 to ₹15 per bag in December. This move comes after a period of stable prices in November, with a modest 1.5% to 2% rise in cement prices during the third quarter compared to the second quarter of the fiscal year. Dealer interactions cited by Jefferies indicate that the long-standing price declines have now bottomed out. The brokerage firm also pointed out that cement manufacturers are targeting a year-on-year volume growth of 8% to 10% in the second half of the current financial year. This growth is expected to be fuelled by a recovery in government capital expenditure (capex), particularly in the March quarter.

Another factor influencing the surge is the price of petcoke, a key raw material in cement production. In November, petcoke prices averaged $95 per tonne, marking a slight increase compared to previous months. This is still a considerable drop from the $100 per tonne level seen earlier this year. The lower cost of petcoke has provided some relief to cement manufacturers, potentially improving margins.

Despite the optimistic outlook from brokerages, industry veteran Anil Singhvi of Shree Digvijay Cement expressed caution. He forecasts only 3% to 4% growth in cement demand for the current financial year, noting that he has not observed substantial price increases yet. This divergence in views highlights the ongoing uncertainty in the market, where some players are more cautious about the sector’s growth trajectory. Overall, while the surge in cement stock prices is largely driven by expectations of price hikes and demand recovery, the market remains sensitive to various external factors such as raw material costs and government spending.