High coal prices dent cement firms’ realisations, India

High coal prices dent cement firms’ realisations, India
Published: 09 February 2009

Indian cement companies continued to reel under the high cost of production besides a fall in demand due to delay in execution of infrastructure and housing projects on the back of liquidity crisis in the third quarter of the financial year.

Realisations when compared on a sequential basis were almost flat for the major cement companies except for Madras Cements and India Cements. Madras Cements reported a drop of 23 per cent in the third quarter realisation at Rs 149 per 50 kg bag against Rs 193 a bag in the second quarter ended September 2008, while India Cements’ fell 6 per cent to Rs 149 a bag (quarter-on-quarter).

Madras Cements’ power and fuel cost in the December quarter rose 10 per cent to Rs 171 crore against Rs 155 crore in the quarter ended September. “The rise in power cost was on account of the term coal contract entered into by the company in the second quarter of FY09. Going ahead, the company will benefit from the 60 per cent drop in international coal prices as it imports 70 per cent of its coal requirements,” said Mr Ajit Motwani, Research Analyst, Emkay Global Financial Services.

India Cements had entered into term contract for supply of coal at $130 a tonne against the average coal cost of $95-100 a tonne in the third quarter of fiscal 2009. Power and fuel cost of India Cements rose 4 per cent to Rs 234 crore on a sequential basis. The company has almost exhausted its high cost inventory and entered into new coal contracts at $90 a tonne in December.


“During the (third) quarter, there has been an extended shutdown in two plants resulting in loss of clinker production of about two lakh tonnes,” said Mr N. Srinivasan, Managing Director, India Cements.

On a quarter-on-quarter basis, Shree Cement’s power and fuel costs witnessed a decline of 5.4 per cent to Rs 748 a tonne. The decline was on account of a huge fall witnessed in pet coke prices from a peak of Rs 8,100/t to Rs4500/t. Shree Cement’s average cost of pet coke in the quarter was Rs 6,235 a tonne, said Mr Motwani.

Realisation in the Holcim group companies, ACC and Ambuja Cement, which reported their year-end performance, was almost stagnant. ACC realisation in 2008 was Rs 174 a bag against Rs 175 a bag last year, while in Ambuja Cement it was Rs 177 a bag against 167 a bag in 2007.

Cement companies will also benefit from the fall in freight rates in the coming days. However, the concern over demand still persists with no marked improvement in revival of housing projects.

Mr A.L. Kapur, Managing Director, Ambuja Cement, said the company is cautiously optimistic about 2009; however, much depends on a recovery in the real estate sector.