Cement manufacturers are grappling with surplus capacity and elevated costs in the first half of FY27, according to reports from Business Standard. Industry volume may have grown by 5 per cent year-on-year (Y-o-Y) in Q1FY27, with capacity utilisation in the range of 70 per cent. Petcoke prices were high but moderated slightly in June, with further reductions possible if West Asia tensions ease and crude prices correct. The North and Central regions saw momentum while the South, East and West witnessed weaker demand, as reported by Business Standard.
Companies faced higher coal and petcoke prices, which may have pushed up fuel costs by around ₹325-350 a tonne in H1FY27 due to inventory build-up. Average international petcoke prices increased to $144 a tonne (up 11 per cent quarter-on-quarter), while domestic petcoke prices surged to around ₹17,753 a tonne (up 30 per cent Q-o-Q). Despite price hikes in April, average Q1FY27 prices were higher by around 4 per cent Q-o-Q than in Q4FY26, with Ebitda per tonne declining by around ₹50-100 Q-o-Q. Higher diesel prices have also pushed up logistics costs, and rising polymer prices have raised packaging expenses. However, recent declines in petcoke prices may have reduced this impact, with fuel costs now around ₹270 a tonne higher Y-o-Y.
In Q1FY27, the North and Central regions saw momentum while the South, East and West witnessed weaker demand, as reported by Business Standard. Lower rainfall is a key risk for rural and semi-urban demand, with industry volumes expected to see significant seasonal declines in Q2FY27 due to poor monsoon conditions. The South and East may see sharper volume declines as infrastructure spending will be low until new state governments stabilise in Tamil Nadu and West Bengal. Despite these challenges, cement demand was strong in the second half (H2) of FY26, and H2FY27 may also see a rebound with better volume growth Y-o-Y despite the higher base.
According to Axis Securities, the Q1 FY27 earnings season is expected to reflect healthy cement demand, supported by sustained government infrastructure spending, resilient rural housing demand, and continued public capex execution. However, elevated fuel and input costs are likely to keep profitability under pressure, making the sustainability of recent cement price hikes critical for margin recovery. For companies under Axis Securities' coverage, volume/revenue are expected to grow by 9%/8% while Ebitda/PAT are expected to contract by ~4%/11% Y-o-Y as higher costs impact profitability growth. Despite near-term earnings headwinds, the sector's medium- to long-term outlook remains positive, underpinned by strong structural demand, industry consolidation, and ongoing investments in cost-efficient operations. Current stock price corrections in large and mid-cap cement names offer an attractive medium-term entry, with companies having green energy, domestic coal, and waste heat recovery system (WHRS) investments expected to outperform in FY27-28.
Leading players are targeting cost reductions of around ₹100-200 a tonne over the next two years through various efficiency measures, according to Business Standard. These include increasing green power usage, higher alternative fuels and raw materials (AFR) share, logistics optimisation, and investment in digitisation and automation to improve plant efficiency. Companies with captive coal have better insulation against energy costs, while greater renewable energy usage will be another positive factor. However, any cost benefits are likely to be passed on to customers given the competitive environment and current capacity utilisation levels.
