Indian cement companies could face a renewed bout of cost inflation in the coming quarters as higher global petcoke and thermal coal prices threaten to push up power and fuel costs, according to Morgan Stanley.
The brokerage said the ongoing US-Iran war in the Middle East has increased the risk of a “higher-for-longer” cost cycle for the cement sector, particularly through Q2FY27 and Q3FY27. Imported petcoke and global thermal coal prices have risen around 20% since the end of July, pointing to pressure on input costs.
Morgan Stanley noted that inventory buffers and increased domestic coal usage helped cushion cement companies from higher costs in Q1FY27 and are likely to provide some support in Q2. However, these factors may have only delayed, rather than eliminated, the impact of elevated fuel costs.
The brokerage estimates that cement companies could face Rs 150-200 per tonne of power and fuel-led cost inflation cumulatively in Q2-Q3-FY27. Including other cost pressures, companies may need to raise pan-India cement prices by around Rs 10-15 per bag, including GST, over the next 2-3 months to offset the impact.
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Demand remains the key variable. Cement volume growth has stayed healthy at around 7-8% year-on-year (YoY), while all-India trade cement prices have remained broadly stable through the monsoon, suggesting underlying demand resilience.
However, Morgan Stanley flagged another risk from a below-normal monsoon. Cumulative rainfall was around 15% below the long-term average as of September 20, with the potential impact on agricultural activity and rural cement demand likely to emerge with a lag. The brokerage therefore sees greater risk to demand in Q4FY27 and Q1FY28, rather than immediately.
Against this backdrop, sustained pricing power after the monsoon and festive season will be crucial. If demand remains resilient and companies are able to push through price hikes, margins could be protected. Otherwise, Morgan Stanley sees a risk of earnings estimate downgrades and continued margin pressure in Q3FY27.
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