The recent hike in coal prices is expected to hit the cement industry, as the cost of coal constitutes around 12% of the total operating cost of the sector, an analyst said.
Getting pricier: A file photo of labourers unloading cement in Gurgaon. Coal constitutes around 12% of the total operating cost of the sector.
“As per the latest notification, Coal India Ltd has hiked the pithead prices of all the grades of coal produced by domestic coal companies with effect from 13 December. The prices have been hiked by 10-15% for the various grades of coal. The cost of coal constitutes roughly 12% of the total operating cost for the cement industry,” brokerage firm Sharekhan Ltd’s senior vice-president Sandeep Nanda said.
“The price hike will have an impact of 2-3% on the overall cost of the cement industry. But considering the buoyant demand scenario expected ahead, cement companies would comfortably be able to pass on the cost increase to the end-users through cement price hikes,” Nanda said.
The outlook for the Indian cement industry is buoyant, Nanda said, adding that a rise in volumes will be witnessed as construction activity gains full steam in December and continues its momentum in the fourth quarter as well.
“The rising cement demand will surely push up the prices gradually. We have already seen first such price hike effected after the resumption of construction activity post-monsoon in Maharashtra, Andhra Pradesh and Tamil Nadu,” he said.
“We also expect cement prices in Kerala to firm up in the coming week. We remain bullish on the diversified cement companies, namely Grasim Industries and Jaiprakash Associates,” he said.
The cement dispatches for November grew at a slower rate of 3.4% in the absence of any major capacity addition in the industry and a lower off-take during the festival season.
Among the cement leaders, ACC Ltd mirrored the industry growth by recording a 3.3% increase year-on-year (YoY) in its dispatches, whereas UltraTech Cement Ltd (a subsidiary of Grasim Industries Ltd) saw a decline of 7% YoY in its dispatches. It being the festival season in the first week of November, construction activity in the north also came to a halt for 10-15 days, Nanda said. Among south-based companies, Madras Cement Ltd’s dispatches bounced back to earlier levels after three months of lacklustre performance, whereas India Cements Ltd’s dispatches dropped marginally month-on-month to 0.69 million tonnes (mt) in November.
The YoY increase was more pronounced among mid-cap companies, particularly JK Cement Ltd, whose dispatches grew 33% to 0.32mt. Dispatches of Orient Paper and Industries Ltd grew by 17.6% YoY to 0.20mt due to higher blending, whereas those of Shree Cement Ltd continued growth at 15% YoY on the back of capacity expansion, Nanda said.