Deregulation Of Coal Price May Hit Cement Industry

The cement majors will be forced to absorb the rise in input prices, due after the recent price deregulation of certain grades of coal, because of oversupply.

The government, which recently thrown open the coal sector to private investment, also freed prices of D grade coal. It allowed Coal India and Singareni Collieries to fix prices of E, F and G grade coal till January 2,000. The freeing of coal prices will result in a price hike of Rs 20 per tonne, said industry sources.

The deregulation of A, B and C grades of coal earlier had led to a 10 per cent increase in coal prices.

 

The cement companies, however, are unlikely to raise prices in the coming months, thanks to oversupply. In fact, the industry is already under pressure during the last nine months as supply outstripped demand by 3-5 per cent.

The cement industry uses D and E grade coal, the prices of which is likely to go up by 15 per cent after deregulation. The impact on input costs will be nearly Rs 20 a tonne, putting further pressure on margins, said analysts. However, cement majors which import substantial quantities of coal will be able to neutralise the effect of the input price rise as the difference between the prices of imported and domestic coal will decline. The big players having port-based units will benefit the most, analysts said.

Industry sources did not expect any major reduction in the import duty in the forthcoming Budget from the present 22 per cent. This is mainly because a cut in import duty will defeat the entire purpose of deregulation by taking the prices of imported coal down.