High coal price to escalate pressure on cement firms' margin
High coal prices owing to supply shortage will escalate pressure on cement frims' margin in the second quarter of the current fiscal, an Enam Securities report said.
By PTI |
MUMBAI: High coal prices owing to supply shortage will escalate pressure on cement frims' margin in the second quarter of the current fiscal, an Enam Securities report said.
"Margins pressure would escalate in Q2 of FY09 and therefore companies with surplus volume are best placed," the report said.
Coal, accounting for almost 35-40 per cent of cost of production of cement, is in short supply, the report said, adding that the proportion of linkage coal was constantly declining.
This has forced cement firms to buy local coal from the open market at a 30-60 per cent premium and resort to costlier imports, it said.
Enam said that the global thermal coal prices are currently cooling off after hitting a high of around USD 200 recently.
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"However, given the global coal shortage, upside risk to cement industry is clearly evident," the report said. Enam felt that the deregulation of the coal sector in India would alter the cost dynamics in the long term.
The report said that the supply situation would continue to remain tight for the rest of the financial year as companies are facing delays in capacity additions.
"We expect, cement prices to see an upswing in the second half as tightness continues in FY09," it said.
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