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Spiralling coal prices may push up cement cost further

(The Hindu Business Line 21st May 2008)

Cement manufacturers are in a fix due to skyrocketing coal prices, which is pushing up the cost of the commodity even as the Government is determined to bring down cement prices.
The industry is facing shortage of domestic coal supplies, coupled with a sharp rise in the import price of coal, according to industry sources.
“The permits (coal allocation to individual companies) of Coal India have been lowered last month due to shortage of coal. A cement company will now get only 64 per cent of the coal originally allocated to it. This is the second cut in the permit of coal after a 20 per cent cut some time ago,” Mr Ramesh Chandro, Managing Director, Ckoramaandel Cements, told Business Line here.
The e-auction of coal, recently introduced by Coal India, is also adding to the irregularities in coal prices increasing the production costs, he added.
According to Mr Srikant Reddy, General Secretary, All India Mini Cement Manufacturers Association, coal prices were revised upwards three times last year by major suppliers.
“Coal India alone had increased prices three times while cutting the permit by over 25 per cent. Another round of hike is in the offing. All this is likely to push up cement prices further,” he said.
The coal price of Singareni Collieries Company Ltd (SCCL) too had gone up significantly during the same period.

Imported coal

To tide over the supply shortage, cement manufacturers are opting for imported coal to a considerable extent.
This may push up the cost of production as the price of imported coal (from Indonesia, Australia and South Africa) has increased significantly over last six months.
About 10-12 per cent of coal requirement of 20 million tonnes is being met through imports by the cement industry at present.
Coal contributed to 65-70 per cent of the cost of cement and its prices increased more than 100 per cent in the last one year, an official of the Cement Manufacturers Association said.
There was about 5 per cent hike in the cement prices across the country in the same period, he added.
As the hike in input costs will be passed on to the customer, about 5-10 per cent hike in cement prices appears inevitable, Mr Srinivas Rao, a senior official in Ultratech Cement, pointed out.

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