India: higher petcoke prices will hit cement companies

A near 75 per cent jump in the prices of petcoke, plus a similar rise in diesel costs combined with the policy of demonetisation, is likely to squeeze the margins of cement sector companies in the current financial year, says research firm Indian Ratings.

Petcoke has shown an upward movement in prices to around US$60-70/t from US$40/t at the beginning of the financial year.

“The rise in petcoke prices coupled with increase in diesel prices is likely to increase power, fuel and freight costs for companies. The higher input cost and lower demand is expected to limit the ability of cement manufacturers to pass on the higher prices to the end consumers, thus potentially squeezing margins,” added India Ratings, a Fitch Group company.

The research firm added that demonetisation will further hurt the growth of the cement sector. Cement production is likely to grow by around four per cent in 2016-17 as compared to an earlier estimate of 4-6 per cent. The impact of demonetisation is expected to be particularly felt in the real estate and construction sectors, which have strong linkages with cement and steel.