Cement companies may firm up on new coal pricing

Sunday, 08 Jan 2012

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 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 INR 8 to INR 10 a bag (50 kg), though analysts say it should be around INR 3 to INR 4 a bag.

Mr HM Bangur MD of Shree Cement said that “Things will be clear next week, when the new bills come from Coal India. We expect a rise of INR 8 to INR 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. Mr HK Vaidya chief general manager sales and marketing of CIL said that “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.”

A senior official of the Cement Stockists and Dealers Association in Mumbai said that “Manufacturers have not communicated any rise in prices, but we are expecting these to rise from January 15. The impact of the change in pricing method (of CIL) would differ for companies, but as much we have gathered, it will be a substantial increase in cost prices.”

Mr Shailendra Chouksey whole time director of JK Lakshmi Cement said that “The impact on pricing would be anywhere between INR 8 and INR 10 a bag. One will pay much higher; in fact, it will double our expense, as the pricing would increase by 20 to 30% and in some cases by 50%.”