What the sand mining ban means for cement companies
Sand availability has become an issue in the states of Uttar Pradesh, Madhya Pradesh, Tamil Nadu and Telangana due to the ban on illegal mining in these regions, according to media reports and channel checks by various brokerage firms. Strict NGT (National Green Tribunal) norms and floods in north Bihar are some of the factors driving this issue in these areas, point out analysts.
“Our interactions with market participants in Bihar suggest that sand availability is extremely low. In UP (Uttar Pradesh), sand availability continues to be challenging. The eastern UP markets, which were reliant on Bihar, will witness further deterioration in the availability of sand,” said a recent report by HDFC Securities Ltd.
To construct 100 square feet of built-up area, 33 bags of cement of 50kg each and 117 cubic ft of sand, among other raw materials are required, according to the JK Lakshmi Cement Ltd website. In simple terms, lower availability of sand would halt or slow construction activities, thus having a cascading impact on cement demand.
Shortage in sand availability has led to spike in sand prices. This has led to illegal mining, which in turn has led to a clampdown by the authorities.
“Our dealer check shows, in the past, administered prices of sand—prior to auctioning method and National Green Tribunal’s intervention—was quite lower. For instance, within 10 kilometres of the loading point, marginal cost of sand was made available at Rs300-Rs350/tonne; as distance increases every five kilometres, an increment of Rs50 is added to base-cost. Today, post auctioning, in some clusters, the administered prices have moved up to as high as Rs1,000-Rs1,300+/tonne; whereas the marginal costing of sand mining is less than Rs560/tonne. Thereby, this wide gap between administered and marginal price has opened up law enforcement issues. Add NGT’s restrictions and a slowdown in construction cannot be ruled out,” said Rohit Natarajan, an analyst with IDBI Capital Markets and Securities Ltd.
Given their diversification, pan-India companies are likely to be less impacted than regional ones.
Cement makers catering to the central region like Shree Cement Ltd, which gets nearly 20% of its dispatches from Bihar, Prism Cement Ltd and Heildeberg Cement or certain clusters in the south like India Cements Ltd and Ramco Cements Ltd, may see an impact on volume offtake, should the issue persist for long, caution analysts.
Meanwhile, cement demand continues to be subdued and since the second quarter of the fiscal year is a weak one, and cement prices across the country have witnessed a seasonal correction.
While one should not read too much into declining prices, as they happen every year during the rainy season, if sand availability issues are not addressed soon, it could threaten the anticipated cement demand recovery post-monsoon.
- RIL world’s 3rd largest energy firm: Platts rankings
- Gold prices slump by Rs100 on demand dent
- India ships 620 tonnes of food today for Rohingya refugees in Bangladesh
- BHU protests: Committee headed by UP chief secretary to probe violence
- Post Nandyal bypolls, TDP and YSRCP continue campaigning, set tone for 2019 elections