India: main cement makers prepared for coal shortage

India: main cement makers prepared for coal shortage
Published: 20 October 2011

Large Indian cement companies will not be too badly affected by the coal shortage in the country. Deep pockets, good cash flows, coal stocks and the ability to pass on the costs to consumers have kept cement makers at ease.

In an industry where 60 per cent of the market share is dominated by big players like Holcim, UltraTech, Jaiprakash Associates, Shree and India Cements, it is only the mid-sized and smaller players that would be at the receiving end, if the prices increase further.

Shree Cement CMD H M Bangur says: “We have enough stock of coal to last our operations. Coal shortage will not affect companies which can afford to pay higher prices. I do not see any immediate impact. I believe, those companies which are at the bottom of the pyramid may be affected.”

Already cement makers are forced to operate at lower capacity utilisation on the back of poor demand scenario. In some regions, such as in the south, it is as low as 60 per cent, which has resulted in reduction of coal intake for companies, say industry players.

Currently, prices of domestic as well as imported coal are almost the same. The 30 per cent increase in coal prices by Coal India early this year has bridged the gap between the two. Prices of higher-grade imported coal are around US$130/t, while that of poor quality with higher moisture content is available in the range of US$75-90/t. UltraTech, Ambuja Cements, India Cements are the majors which import relatively higher quantity of coal.

Southern major India Cements imports close to 65 per cent of its coal requirement. V M Mohan, joint president (corporate finance), India Cements, says: “Capacity utilisation is low currently and we have sufficient stocks of coal to take care of our operations.”

S Sreekanth Reddy, executive director of Andhra-based Sagar Cements agrees. “As of now there is no problem of coal shortage. We have medium-term contract of four-six months for coal,” adds Reddy.
At a time when units of power companies are being forced to shut down units, cement makers are well prepared. However, they also have made clear that any further cost push in whatever form would be passed on to the consumers. “We cannot keep selling our produce at low prices when input costs are not sliding," said an official.

Cement makers are known to pass on costs to customers, except on some recent occasions where they could not as the demand was miserably low. In the last two months, all-India cement prices have started rising. In September, prices hovered at INR250 (US$5) for a 50kg bag. In October, too, some further price rise took place, pushing the average cement price to INR260 a bag.