The conflict in West Asia, now entering its second month, is expected to raise costs for the cement industry by Rs 175–200 per tonne, analysts said, as imported fuel prices rise and companies run through their typical 30–45-day inventories.
Imported pet coke and coal—central to the industry’s fuel mix— have already risen by 11% and 7%, respectively, since the onset of the conflict. The trajectory remains upward amid geopolitical uncertainty, which is likely to keep both availability and pricing volatile. India depends heavily on overseas markets for pet coke. The US accounts for about 50% of imports, followed by West Asian countries at around 30%.
The impact is significant for an industry where power and fuel costs make up 30–35% of production expenses, and pet coke and coal together account for 85–90% of the fuel mix.
Fuel Crisis
“Higher Brent crude oil prices lead to a spurt in imported fuel prices (both coal and pet coke), which may increase fuel costs by Rs 160–200/tonne in 1QFY27E,” analysts from Motilal Oswal said.
The immediate challenge is substitution. As imported fuel becomes costlier or harder to source, companies are expected to rely more on domestic alternatives. However, domestic pet coke has a lower calorific value, requiring higher volumes to generate the same energy, thereby diluting cost advantages.
Availability is another constraint. Domestic supply of pet coke and other refinery byproducts may not be sufficient to meet incremental demand, particularly as refiners shift focus towards gas. “The mandate from the Centre to the refineries is clearly to focus on gas production. So other byproducts may not see an increase in domestic supply as quickly as the demand rises,” an analyst with a Mumbai based brokerage said. Cement companies, the expert added, are in conversations with refineries to tackle the issue.
This structural limitation reduces flexibility in rebalancing the fuel mix, forcing companies to either use suboptimal inputs or absorb higher costs.
Supply Chain Vulnerabilities
Beyond fuel, supply chain risks are emerging. Analysts point to potential disruptions in gypsum sourcing—a key raw material largely imported from West Asia— and rising packaging costs due to tighter polypropylene availability.
Imported gypsum accounts for 33–34% of the sector’s consumption, with about 96% sourced from West Asian countries. Of this, nearly 90% comes from Oman, with the rest from Iran and the UAE.
“The Polypropylene (PP) bag availability may also tighten as refineries prioritise LPG production, leading to an increase in PP bag prices (35-40%), which may have an incremental cost impact of Rs 60-70/tonne of cement,” they said.
These pressures come at a time of accelerating input cost inflation and are expected to weigh on margins. While companies may attempt to pass on higher costs through price hikes, demand conditions may limit full transmission.
“Pricing power exists, but it is not elastic enough to offset near-term cost shocks immediately,” analysts from Axis Direct said.
“We saw prices rise in January which sustained in February. In March, cement makers are already trying to affect some increases in pockets,” the Mumbai-based analyst said.