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Lower fuel costs lift Indian cement producers' margins

Lower fuel costs lift Indian cement producers' margins

Singapore, 21 May (Argus) — Lower prices of petroleum coke and thermal coal, the two key fuels used in producing cement, helped raise margins at Indian cement producers over January-March compared with a year earlier. India's largest cement producer Ultratech increased its January-March profit by more than 35pc from a year earlier to a record 22.58bn rupees ($271mn) because of subdued kiln fuel costs. The company's blended coke and coal fuel costs for the quarter fell to $150/t, down by 22.7pc from a year earlier. Ultratech's overall energy costs for cement during the quarter fell by 21pc from a year earlier to Rs1,025/t, with total power and fuel costs down by nearly 9pc to Rs48.39bn. Fuel typically accounts for about a third of cement production costs. The Argus cfr India 6.5pc sulphur coke assessment averaged $116.50/t in the quarter ended 31 March, down by nearly 32pc from the year-earlier average of $170.92/t. This price was last assessed at $109.50/t on 15 May. Thermal coal prices were also lower from a year earlier across most origins. Ultratech sold 35.08mn t of cement during January-March, up by 11pc on a year earlier. Higher cement sales typically boost coke and thermal coal consumption as cement producers use these as fuel in kilns. Industry participants were able to realise a higher profit despite a lower cement price during January-March, primarily because of a cushion from the reduced fuel costs. Ultratech realised Rs5,170/t of cement for January-March, down by 3.8pc from the year earlier and 6pc lower from October-December. Fellow producer Shree Cement raised its sales by 8pc from a year earlier to 8.83mn t over January-March. But the firm realised Rs4,721/t of cement during January-March, down by 3pc from a year earlier. Lower fuel costs helped it to boost the latest quarter's profits by 21pc from the previous year to Rs6.62bn. Fuel costs eased by 28pc to Rs1.82/unit. Shree expects fuel prices to remain stable in the coming months. Cement prices in key markets fell by an average 7.5pc over January-March from the previous quarter, while exit prices in March were lower by 9-10pc compared with average rates for the same period, said cement producer Dalmia Bharat. The price drop during January-March was far more than what the firm had seen in similar period in any previous year. Cement producers resorted to price cuts to gain more market in the latest quarter with rising production capacity. But cement demand growth is expected to outpace the rate of capacity additions in the coming years. The industry is expected to grow capacity at a compounded growth rate of 7-8pc/yr in the next few years, said Adani, which owns and operates listed cement companies Ambuja Cement and ACC. The group forecasts India's cement demand to grow at 8-9pc/yr over the next five years. Adani's power and fuel costs fell by 13pc from a year earlier to Rs1,219/t during January-March. A high share of coal from domestic captive mines and opportunities to buy imported coke will further lower its fuel costs, the company said. Ambuja doubled its January-March profit from a year earlier to Rs15.26bn. Firmer April-June outlook Lower priced coke cargoes purchased during January-March are expected to help cement producers partly offset the impact of pressured cement realisation for April-June, said a market participant. Cement prices remain weak as demand is affected because of India's 19 April-1 June general elections . Cement plants typically hold fuel inventories of 60-90 days, including supplies in the pipeline and cargoes on the water. The full benefit of reduced fuel prices comes with a lag of up to three months. This is especially true of coke cargoes coming from the US where the transit time is around 45 days. By Ajay Modi Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.