With Cost pressure rising; cement companies may prefer USA coal over imported pet coke.

MUMBAI, 29 SEPTEMBER, 2020 (GPN): According to cement sector report by Emkay Global Financial Services, the cement prices have declined by Rs 3-5/bag across regions in Sep’20. The price gap between trade and non-trade cement remained wide in the North region (Rs65-90/bag). On a QoQ basis, pan-India average trade prices declined 3.7% in Q2FY21, with a 2-5% QoQ decline across regions. The cement manufacturers are likely to hike the price in Q3FY21 or after the festive seasons. The cement prices rose 2.4%/10.8% YoY in the North/South markets. In Central/East/West markets, average cement prices fell 1.5%/0.5%/2.7% YoY.

From the demand aspect, Emkay Global Financial Services expect improvement in North, East and Central regions. The report indicated the demand growth of 6-8% YoY in the North/Central regions and volume growth of 2-3% YoY in the East region in Sep’20.  In the East region, demand improved by 2-3% YoY in Aug’20 led by growth in Bihar, West Bengal and Jharkhand markets. In Sep’20, demand in the region is expected to improve by 2-3% YoY. Demand in the South region remains affected by the heavy monsoon in Kerala, Andhra Pradesh, Telangana, and labour shortage. Demand in the South region is estimated to decline 20- 24% YoY in Jun-Aug’20 and 18-20% YoY in Sep’20. In the West region, demand is likely to fall 15-17% YoY, dragged by a 22-24% drop in Maharashtra, though volume in Gujarat is expected to drop 7-8% YoY. As per Core Industries data, pan-India cement production declined 13.5% yoy in Jul’20. Based on interactions with channel partners, Emkay Global Financial Services expects volume decline of 9- 10% yoy in Aug’20 and 4-6% yoy in Sep’20.

Basis Emkay Research team’s interaction with a few coal traders, cement companies have shifted to USA coal (CFR price of US$75-77/ton for 6,900 NAR coal), which is, on landed basis, 5-7% cheaper than imported pet coke. Sustenance of pet coke prices at high levels may impact operating costs by Rs54-70/ton from mid-Q3FY21. High diesel prices (up 11.6% QoQ) may lead to an increase in freight costs by Rs70-100/ton. The average pet coke price is up 11-14% YoY. The current average price of imported pet coke is US$85-88/ton, compared to the average consumption price of US$70/ton in Q1. ENDS