August 11, 2021 (MLN): Amid rising international coal prices, Cement prices in the northern region have witnessed a highest weekly increase of 4% or Rs25/bag in over two years to currently stand around Rs665-670/bag.
Despite weaker demand due to the ongoing monsoon season, cement prices have surged on the back of rising production costs, courtesy of surging international coal prices which have doubled in the last year. According to the report by Sherman Securities, cement prices have increased by around Rs35/bag since June end.
Benchmark Richard Bay coal price is currently trading at US$136/ton, surging by around 31% from the 4QFY21 average price of US$103/ton (up 36% in rupee terms).
The ongoing tensions between China and Australia, coupled with higher freight costs, unfavorable weather, and supply-side issues are keeping coal prices near decade-high levels, the report said.
As per the report, cement players are sitting at an average coal inventory of around US$100/ton (2-month lag). Thus, margins in 1QFY22 might improve as the majority impact of higher costs has already been passed on by north players during the last few weeks.
Assuming coal prices sustain at current levels, it is expected that cement manufacturers will further increase per bag prices by around Rs15-20 in a month or so, to prevent margin deterioration in subsequent quarters.
During 4QFY21 average coal prices increased by $18/ton to US$114.9/ton due to increased demand from China and supply chain issues caused by the COVID outbreak. However, the increase in average cement prices remained lower than required as companies delayed price increase due to expectations of the FY22 budget.
To recall, cement prices fell considerably last year during months leading up to the covid-linked lockdown and since have been slowly but steadily improving.
Conversely, in the southern region, the cement prices in most of the cities remained unchanged, ranging from Rs640 to Rs690 per bag. The stability in prices in the south region was due to different demand dynamics and contrasting market size, also the competition among cement manufacturers is not intense as there are few players in the south.
Although the government has been holding weekly meetings of the National Coordination Committee on Housing, Construction, and Development with all the stakeholders over the last year, so far no steps have been taken to bring down cement prices.
Going forward, a better utilization level given higher cement demand on account of growing construction activities in public and private sectors would allow cement makers to continue to raise cement prices.
Copyright Mettis Link News
42705
