India: coal shortage slows down cement expansion

India: coal shortage slows down cement expansion
Published: 21 May 2010

Expansion of cement production capacities in the southern states is likely to be slower than expected due to shortage in coal supplies, the main fuel.

The backlog demand from cement plants for additional coal has already crossed 2Mt with Singareni Collieries Company Limited (SCCL), the state-owned coal mining company which is the major suppliers to cement plants in the southern states.

Various cement plants have written to the coal ministry seeking for more coal from SCCL. However, SCCL, has expressed its inability to increase the supplies. “Coal supplies to cement plants will not increase dramatically,” S Narsing Rao, chairman and managing director of SCCL, told Business Standard.

The total deficit in the coal supplies from SCCL for cement, power, ceramic and other users is about 20 million tonne. “We are meeting over 75 per cent of the total coal demand from the cement companies,” Rao said.

SCCL supplies an estimated 8Mt of coal per annum to cement plants in the southern states. This translates into a cement production of 48-50Mt. Cement plants use Grade C coal, which has a useful heat value of of 5600 kilo calories per kg. The average landing cost, depending on the distance, is about INR2500/t (Euro42.5). Coal charges account for 17 per cent of the expenditure incurred for cement production.

“Coal supply will not fall below the quantity agreed in the linkage agreements,” Rao said, adding the price of coal for cement plants had not been increased in the recent times.

Coal supplies might also see a slight drop in July and August due to rains, when demand for coal from cement plants too would fall.

SSCL last signed up linkages with five cement plants in 2007 on a cost-plus basis (premium) as an exclusive mine was opened. It started supplying coal from April 2008 onwards.

SCCL achieved an annual production of 50.42Mt during 2009-10 and is hopeful of 51.3m this year. Cement and power are the major consumers of coal. SCCL also has an e-auction platform where companies pay about 15 per cent more for getting additional supplies. There though is a scope for other coal companies of Coal India LImited to step in to meet the demand.

According to Swamy, general manager of Rain Commodities, makers of Priya brand of cement, there is a gap between the demand and supply of coal and the companies depend on alternative fuels like pet coke. The balance fuel requirements are met with imported coal.

Rain Commodities needs about 15,000tcoal per annum and meets about 80 per cent of the fuel requirements through SCCL. The remaining is met through imported coal, whose landing cost goes up to INR7000/t. The recent increase in diesel prices too has added to the increasing input costs, he said.

The demand for cement, in general, declined as construction activity slowed down due to water shortage in the peaking summer. The recent power cuts (seven days in a month) too resulted in cement production falling by about 25 per cent. The demand for cement in Andhra Pradesh too fractured due to the demands for and against a separate Telangana, he said.

“The industry is under pressure due to slackened demand. As a result, the prices have come down by INR10 to 15 per bag in the recent times,” said a representative of cement company. The industry expects the demand for cement to increase 10-15 per cent this month. The cement dispatches from the state in April this year stood at 2.05Mt as against 1.9Mt during the same time last year, he said.