India: Cement may firm up on new coal pricing

Additional cost pressure due to costlier raw material from Coal India Ltd (CIL). Companies expect prices to rise by INR8-10 a bag (US$0.15-0.19).

The cement industry, which witnessed a round of price cuts last month, is now facing additional cost pressure from Coal India’s new pricing mechanism. CIL shifted to a pricing based on gross calorific value (GCV), in line with global norms, from its earlier grading on useful heat value. The result has been a rise in prices.

Cement companies are expecting the increase in fuel cost to be around INR8-10 a bag (50kg), though analysts say it should be around INR3-4 a bag.

H M Bangur, managing director, Shree Cement, said, "Things will be clear next week, when the new bills come from Coal India. We expect a rise of INR8-10 a bag. We will then determine how much we need to pass on."

The sector consumes about seven to eight million tonnes of coal annually. "Normally, the sector uses higher grades of coal, like C and D. With the GCV regime in place, our average price rise is 10-15 per cent. For the cement sector, I think the impact may be a bit higher," said H K Vaidya, chief general manager, sales and marketing, CIL.

An analyst from a domestic brokerage said, "Of the bigger companies, ACC has the highest dependence on linkages, at around 60-70 per cent. Jaypee Cement also meets its major requirement from them.

UltraTech and Ambuja Cement’s dependence on CIL is 30-35 per cent. Though Singareni Coal has not yet announced the change in pricing method, we expect it to follow soon. Southern players are dependent on Singareni Coal."