Cement companies did relatively better than expectations in the Juen quarter owing to cost savings. But recent increases in certain costs do not bode well for cement manufacturers.
The price of key input material petroleum coke (pet coke) has recently started to rise. In August, international pet coke prices increased sharply by 31% on a month-on-month (m-o-m) basis to USD83/tonne, as per Kotak Institutional Equities. Domestic pet coke prices too increased by 8% m-o-m in August to ₹7,275/tonne. Also, the price of imported coal has started to inch up, it was up around a percent in August at USD55/tonne, the Kotak report said.
Analysts say, pet coke prices are unlikely to see a run-away rally to their previous high levels of beyond USD100/tonne. However, the landed cost may continue to head northwards, due to increased ocean freight cost.
Cement major Ultratech Cements Ltd had mentioned in its latest earnings conference call that, at times, ocean freight is almost 50% of the total cost component when procuring pet coke. The management of Orient Cement Ltd told in their conference call that they had sufficient inventory for the September quarter, but expect the impact of increased pet coke cost to reflect in its December quarter performance.
Analysts also caution of increased input cost pressures to start reflecting from the second half of the fiscal year. Pet coke inventory procured at lower prices and lag in exhaustion of that inventory could temporarily benefit. As for other input costs, although diesel prices have moderated sequentially in August, they remain high compared to the year ago period. This will weigh on freight costs.
That said, improvement in realisations can compensate for this increasing cost pressures. Currently, demand and pricing scenarios are bleak as September is a seasonally weak quarter for the sector. Latest dealers’ channel checks show that prices have corrected across India, except South. Thus, keeping the all-India average cement price flat at ₹365/bag, compared to July. One cement bag weighs kilograms.
Volumes are expected to catch-up in the second half of the fiscal year as demand disruption recedes. However, it remains to be seen if it translates into higher cement prices. Analysts caution that increased capacity additions, lower utilisation levels and cut-throat competition could cap significant realisations improvements.
