Cement Companies Gaining Profit from Declining Petcoke Price
Foreign brokerage house Credit Suisse expects profitability for the cement sector to improve as prices of key input material petroleum coke (petcoke) has declined, along with those of other commodities.
Akin to many other sectors, margins of cement makers were under pressure due to commodity cost inflation. Prices of petcoke and coal had started rising in recent months after having remained soft for most part of 2020. Freight cost for cement makers also inched up on dearer diesel.
In the March quarter of fiscal 2021, many cement manufacturers managed to contain operating margin erosion with cost control measures and use of cheaper alternatives to petcoke. However, the managements of key cement producers did caution of an impact on margins in a scenario of elevated input costs.
Apart from rationalising expenses, cement companies have also passed on some burden of increased costs to consumers. Dealers channel checks by various brokerages show that cement prices were raised in most markets in India in May. Cement dealers expect another round of price hikes in June. However, given the seasonal weakness in demand due to monsoon, sustainability of price hikes remains to be seen.
Meanwhile, among the pan-India focused cement makers, Credit Suisse is positive on UltraTech Cement Ltd and Ambuja Cement Ltd. The foreign resarch house feels that these companies are better placed than peers on volumes growth, capacity addition and balance sheet management.