The Hindu Business Line : ‘Fall in coal prices fails to benefit cement cos’

Mumbai, Sept. 24 The cement sector is plagued by the double whammy of softening demand and rising input cost. Coal seems to be a burning issue. With the marginal fall in international coal prices not trickling down due to rupee depreciation, companies are now banking on pick up in demand post-monsoon. Despite the turbulent global financial markets and consequent impact on India, Mr Vinod Juneja, Managing Director, Binani Cement, is all optimistic and expects the robust economic growth to lend a helping hand.

Has drop in coal prices helped cement companies?

Unlike crude oil, coal has not fallen sharply. Of late, it has deviated from the crude oil price trend. Just like OPEC (Organization of the Petroleum Exporting Countries) mining companies in South Africa and Indonesia are working together to see that coal prices do not fall sharply. Moreover, rupee depreciated nearly 13 per cent against dollar between April and September wiping out the gain from the fall in coal prices.

Export realisations would have gone up due to rupee depreciation?

India exports a very small quantity of cement. For instance, cement companies exported just about 3.3 million tonnes of the total production of 169 million tonnes last fiscal. So, rupee depreciation will do more harm than gain for the cement sector.

Are companies under pricing pressure due to oversupply?

Oversupply fear in the near future seems exaggerated. Capacity additions are delayed by at least three to six months due difficulty in procuring equipment and various other issues. Moreover, initial start-up delays and plant stabilisation will take about three months. Though the industry is expected to commission 49 mtpa in FY’09, the effective production will be only about 14 mtpa. Thus, the demand-supply may more or less match in FY’09. Next fiscal may see an excess supply, but I believe expectations of a good economic growth may moderate any adverse impact.

Will the financial crisis in US have impact on cement manufacturers?

It will not have any direct impact. The meltdown in the stock market may bring down valuations of companies in the short term. The valuation has already come down to about $180 to $200 a tonne from $220 a tonne a year back.

However, given the current overseas market condition, it will be difficult to find a willing investor. On the domestic front, increase in infrastructure spending by the Government will more than mitigate the possible slowdown from the real estate sector.