Higher prices of coal — a key raw material for cement production — and its reduced availability are causing concerns and necessitating a further increase of cement prices in the coming weeks amid bright demand outlook, said N Srinivasan, Vice Chairman and Managing Director of India Cements.
The leading cement producer has reported a significant drop in net profit at ₹3.3 crore for the quarter ended December 31, 2021, as compared to ₹62 crore in the same quarter a year ago due to poor prices and higher cost of production.
Lower demand
The performance of the company was severely affected by record rainfall in the southern states with consequent flooding in several areas which resulted in stalling of construction activities.
This was further compounded by downward movement in selling prices in the east and north-east markets from where the company withdrew as the sales in those areas became un-remunerative. This resulted in lower volume for the quarter for the company which, together with the onslaught of increased fuel prices, had a telling impact on the bottom line for the December 2021 quarter.
Coal crisis
“It was a challenging quarter as rains wreaked havoc in key southern markets, while east markets prices were low. On top of this, for the first time in several years, we witnessed the coal crisis. The cost of coal went up from $60 to $280. While American coal was not available, Australian coal came at a high price. Indonesian coal was erratic in availability. The quality of South African coal was poorer than American coal. Therefore, if one had bought coal earlier at low prices, one could sustain. Otherwise, price increases had to be effected. India Cements decided not to sell cement at a low price with the high cost of coal, while several others have done so. Hence, our sequential performance has also been impacted,” said Srinivasan.
While net plant realisation for Q3 was marginally higher by 5 per cent, the variable cost of operation had gone up by nearly 25 per cent as compared to the same quarter of the previous year due to a substantial increase in the price of coal. The increase in variable cost alone meant a contribution loss of more than ₹115 crore in the quarter. Despite tight cost control measures, the company’s EBIDTA was lower at ₹110 crore as compared to ₹218 crore a year ago.
The company’s cement sales were lower by 11 per cent at 21.08 lakh tonnes for the third quarter as compared to 23.77 lakh tons in the previous year.
Srinivasan said a further increase in cement prices is necessary to offset the increased coal prices.