India: fuel cost rise puts squeeze on margins

The rising cost of coal and petcoke have put pressure on cement producers even as the impact of demonetisation is depressing demand and bringing down prices, the Business Standard reports.

Cement prices in southern India have fallen by INR30 to about INR300 (US$4.42) a bag, while prices in the west are lower still, having slipped to INR245. Analysts believe that demand will fall by 15-20 per cent in December.

Meanwhile, petcoke imports have increased in price from US$72.13/t in July to US$95.75/t, up 33 per cent in the first two weeks of December. Coal imports have also grown more expensive, rising 43 per cent in the same period to stand at US$72.23/t.

“There may be an impact on the margins of the cement companies,” said HM Bangur, managing director, Shree Cement.

An analyst working for Motilal Oswal said: “It is the cost advantage which differentiates a cement maker from others and ensures good operating margins. With both petcoke and coal prices rising, this advantage is disappearing.”