Coal India’s price rise to hurt cement players

Coal India’s price rise to hurt cement players
Published: 02 March 2011

Several large cement producers are likely to be hit with Coal India announcing an increase in prices of coal effective 27 February. On an average, coal prices will move up by 12 per cent. The prices of premium grade A and B coal have been linked to international coal prices and would be offered at a 15 per cent discount to global spot prices. It is widely believed that the benchmark price would be decided through a formula-based on calorific value of the coal and Indonesian coal spot prices. Other grades of coal would be 30 per cent costlier than the earlier notified prices.

Cement analysts believe that a steep rise in coal prices will erode profitability and margins of most companies. In its report on the industry, Centrum says pricing power will remain under pressure over the next 12-18 months, due to the glut in the industry. Prior to CIL’s price rise, a 10 per cent price increase was factored in for financial year 2011-12. However, the recent increase is clearly higher than estimates. Centrum expects ACC to be most severely impacted among large manufacturers, as it procures 60 per cent of its coal requirements through linkages and 20 per cent through e-auctions.
 
Ambuja meets 40 per cent of its needs through linkages and 25 per cent through e-auctions. And UltraTech Cement buys 30 per cent requirements through linkages and 10 per cent through e-auctions. Shree Cement and JK Cement are unlikely to be impacted, as they use petcoke.

Ambuja meets 40 per cent of its needs through linkages and 25 per cent through e-auctions. And UltraTech Cement buys 30 per cent requirements through linkages and 10 per cent through e-auctions. Shree Cement and JK Cement are unlikely to be impacted, as they use petcoke.