The sharp increase in production cost and depressed demand have taken a toll on major cement companies such as ACC, Ambuja Cements and UltraTech Cement which announced their financial performance for the March quarter on Tuesday.

Apart from the fall in demand, the spike in coal prices has been a major concern. Cement demand in the fourth quarter was up 5.2 per cent compared to last year while key raw material prices have moved up significantly.

Mr K.C. Birla, Chief Financial Officer, UltraTech Cement, said imported coal prices have risen 28 per cent in the March quarter to $141 a tonne against $110 quoted in the same period last year while prices of domestic linkage coal of ‘A' and ‘B' grade have shot up 150 per cent.

“Coal prices are generally linked to the crude oil price movement. We expect the coal prices to remain more or less at the current level in this fiscal,” he said. The industry registered a demand growth of 5.3 per cent in FY'11, the lowest in the last 10 years.

This was primarily on account of the subdued growth in key cement consuming States driven by lower infrastructure spending, slowdown in the realty sector, an extended monsoon and non-availability of railway wagons.

Besides, about 28 million tonnes of capacity was added in FY'11.

In the previous fiscal, about 60 mt were added resulting in a surplus scenario which may last for the next three years. The pricing environment may remain challenging and with the impact of surplus capacity, margins may continue to remain under pressure.

With the steep increases in energy cost driven by increase in coal and freight costs, profit margins are expected to be under pressure, said Mr Onne van der Weijde, Managing Director, Ambuja Cements.

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