Following the rise in prices of imported coal, pet coke and crude oil against the backdrop of the Russia-Ukraine conflict, domestic cement prices are expected to increase by 6-13 per cent across the country.
According to industry sources, coal and petcoke prices have increased sharply by 30-50 per cent in the last 6 months due to the Ukraine crisis. According to a Crisil report, after rising to Rs 390 per bag over the past 12 months at an all-India level, domestic cement prices are set to climb another Rs 25-50 across regions in April as manufacturers start to pass on rising costs.
Coal and pet coke are the most important elements of clinker, which is a critical raw material used in the cement manufacturing industry. “Apart from the ever-increasing price of coal and pet coke, the cost of petroleum products like petrol and diesel prices is also increasing in the national and international markets, which very badly impacts the cost of production of raw materials of cement, Packaging materials, production, transportation and distribution cost of cement,” said Vishal Kanodia, MD, Kanodia Cement.
After the war broke out in Ukraine, Brent crude prices saw an increase of 21 per cent to an average of $115 a barrel in the month of March. For the entire financial year, prices were up 79 per cent, too. Similarly, international petcoke prices shot up 43 per cent on-quarter in March. Last fiscal, US petcoke prices were up 96 per cent. Domestic petcoke prices (Gujarat ex-refinery) have followed suit, rising 26 per cent on-month in March and 21 per cent on-month in April. Industry sources indicate that due to higher sea freight and supply-side constraints, the cost of imported petroleum coke has more than doubled to around $130 per tonne on a yearly basis.
“In FY23, cement volume growth will be stable at 5-7 per cent, driven by affordable housing demand from tier-2 and tier-3 cities, along with infrastructure. However, high construction costs will limit the demand uptick,” said Hetal Gandhi, director, CRISIL Research. Though demand had picked up by 20 per cent during the first half of FY22, it came down to 7 per cent, owing to unseasonal rains, sand issues and labour shortage. The South India Cement Manufacturers Association (SICMA) has already come out in public stating that it is being hit by the main three input costs – fuel, power and transport. It also raised concerns about coal availability due to the ongoing war. Moreover, Sicma has also highlighted the limited stock availability with cement companies.
“Due to the shortage of coal and pet coke, a sizable portion of cement plant operations has also been diverted on D. G set which also affects -the production cost of cement,” Kanodia said. “In Nutshell, the increased cost of Coal and Petroleum products has increased the cost of production, distribution, and other inputs cost that has ultimately increased our cement production cost to Rs 70-75 Per Bag during the last two-three months,” he added.