India: fuel price hike to hit operating costs of cement companies

India: fuel price hike to hit operating costs of cement companies
Published: 06 July 2010

Leading Indian cement players (ACC, Ambuja Cement, Aditya Birla group, Shree Cement and Jaiprakash Associates) reported a 7.6% year-on-year (y-o-y) growth in their total despatches to 8.7 million tonne in the month of June, 2010. This was largely in tune with the 8.4% growth in the entire cement industry’s dispatch in the first two months of the current financial year and analysts point to a high base effect in the corresponding period of the previous year. 

However, Jaiprakash Associates bucked this industry trend and reported a growth of nearly 57% on a YoY basis in its cement despatches in the first quarter of the current financial year, given the rapidly expanding capacity coming on stream in the past few quarters.

However, rising operational costs are a cause for concern. For instance, c 

Also, power & fuel costs are expected to rise, as imported coal prices are at US$100-105/t at the end of the June 2010 quarter, a rise of nearly 50% y-o-y, as per various estimates. 

However, large players like ACC and Ultratech have expanded their captive power facilities which should help minimise the impact of higher coal prices.

On the demand side, there is no visible pick-up in the key southern region, which has amongst the largest capacities on a region-wise basis. As a result, the entire cement industry capacity utilisation was estimated at 82% levels at the end of May 2010. This was primarily due to capacity utilisation in southern states, which was estimated at 70% levels. In the cement industry, when capacity utilisation falls below 85% levels, it leads to a dip in retail prices.