Fall in ocean freight rates to benefit cement companies

Domestic cement makers may enjoy some relief from rising input costs in next 2-3 months as ocean freight rates have declined. Ambuja, Grasim, UltraTech, Madras Cements, India Cements and Binani will be among the beneficiaries as their coal requirement is substantially met by imports.

However, the companies said that the recent sharp rupee depreciation against dollar may not let them reap the entire benefits.

Industry analysts said that imported coal whose landing prices had crossed $200 a tonne are now in the range of $140 - $150 per tonne.

“Though rupee has depreciated, cement companies will still see lessening of cost pressure,” they said. The current shipments were contracted at 40-42 level of the rupee against dollar.

Though there will not be an immediate positive impact as companies do long term contracts for importing coal. Therefore, though freight rates are down, benefits will be seen only after November.

Vinod Juneja, managing director, Binani Cement, said, “Ocean freight rates have come down but whatever benefits we could get due to this has been washed away by rupee depreciation. We do not see any immediate impact but after two months we foresee benefits out of this.” The company imports 75 per cent of its coal from Indonesia and South Africa.

The Baltic freight index in the last two months have come down from levels of 11,000 to 4,500. “This means that freight rates have slipped by at least 40 per cent,” said an analyst.

Southern cement major, India Cements imports 70 per cent of its coal. The company is optimistic about the benefits.

“It is obvious that lower ocean freight rates will have a positive impact. But it may not be reflected at least for a quarter time. There is a lag period as contracts are done a few months earlier,” said V M Mohan, joint president (Corporate Finance), India Cements.

Sources in one of the multi national cement companies having its operations in the country said,” The company at present is importing coal at around $ 200 per tonne (including freight) as contracts were done in June-July and will last till the end of November this year.”

The recent decline in freight rates will have its reflection only after November, they said.

Ajay D’Souza, head (research), Crisil, said, “Freight rates have been coming down as a result of which landing cost of coal at ports have declined. This will help cement firms mitigate the rise in input costs to some extent and they will be able to make up (not fully) the fall in realisation.”