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OPC Cement, 53 Grade Cement & PPC Cement Manufacturer & Exporter in India

NewsCement IndustryCement producer will have to shift to high cost imported coal

Cement producer will have to shift to high cost imported coal

Cement producer will have to shift to high cost imported coal

With the multiple issues plaguing the coal supply, the country today is facing acute shortage of coal and the power stations running on very low inventory of coal. To improve the worsening coal supply issue, Coal India (CIL) has decided to offer the October -11 e-auction quota coal to power companies first (though the same would be under of the FSA quota for FY12). We believe that this move will affect cement manufacturers who have significant dependence on e-auction coal. In the event of short supply of coal through e-auction, cement manufacturers will have increased dependence on imported coal. Though prices of coal in international markets have been stagnant at USD 120, the sharp depreciation of INR against USD has increased the landed price. Currently price of imported coal is ~Rs6600/t as compared to e-auction price of ~Rs3400/t. However adjusted for calorific value, the cost of imported coal is ~15-20% higher.

Costs most likely to get passed given the onset of construction season: The increase in fuel cost though negative for cement producers, is unlikely to impact FY12 earnings meaningfully as CIL chairman has said that the supply of e-auction quota coal to power producers is only for the month of October-11. Further with the onset of busy construction season, cement producers should be able to pass on the increased cost to the consumer.

Continued shortage could impact cement production and dispatches: Though cement companies keep 30-40 days of coal inventory we believe that the continued shortage of domestic coal could disrupt production schedule which in turn would impact the cement dispatches. The following exhibit contains the proportion of coal procured through e-auction by cement companies.

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