Economy

Aggressive limestone bids may cap cement cos profit

Suresh P Iyengar Mumbai | Updated on September 18, 2019 Published on September 18, 2019

The average cost of limestone reserves through the auction was at ₹350 a tonne as against current royalty cost of ₹82 a tonne including 30 per cent contribution to District Mineral Fund.   -  REUTERS

Cement prices seen steadying at higher levels with companies trying to pass on the incremental cost

Cement companies profit are likely to come under pressure due to higher cost involved to secure limestone mines. The sloweroff-take may cap its ability to pass on the higher cost.

So far, the government has auctioned 24 limestone reserves spread over 6,509 hectares with aggregate limestone reserves of 2.7 billion tonnes.

The average cost of limestone reserves through the auction was at ₹350 a tonne as against current royalty cost of ₹82 a tonne including 30 per cent contribution to District Mineral Fund.

UltraTech Cement, Shree Cement, JK Cement and JK Lakshmi Cement and Mangalam Cement have bid aggressively and bagged healthy reserves from allocated mines.

Of the total limestone mines auctioned, Northern region has the highest reserves of 1,085 tonnes covering 2,238 hectares followed by western and eastern regions with reserves of 794 and 661 tonnes respectively.

All six mines auctioned in Northern region are in Rajasthan with preferred bidders being Dalmia Bharat, Ambuja Cements, JSW Cement, Emami Cement (two mines) and Shree Cement.

UltraTech Cement had bagged two mines, one each in Chhattisgarh and Madhya Pradesh with reserves of 249 tonnes and 345 tonnes at the cost of ₹685 a tonne and ₹735 a tonne.

Shree Cement has won two limestone mines at Andhra Pradesh and one each in Chhattisgarh, Rajasthan and Gujarat.

Dalmia Bharat has bagged mines in Chhattisgarh, Odisha, Rajasthan while Ambuja Cement got one each in Rajasthan and Maharashtra.

Binod Modi, Research Analyst, Reliance Securities said the higher limestone cost is expected to put further pressure on the margin of cement companies in coming days.

Cement prices will remain steady at higher levels with cement companies trying to pass on the incremental cost and companies with rich reserves from allotted mines are likely to benefit the most.

Of the overall limestone reserve across the country, the southern region leads with 48 per cent of reserves followed by North and Western regions with 17 per cent and 12 per cent.

Following high reserves, Modi said the government might prompt more auctioning in Southern region in the long-run amid the current oversupply in the region.

Opportunities in J&K

Infrastructure development opportunities in Jammu & Kashmir is expected to soar with the abrogation of Article 370 and 35A and open up the sizeable opportunity for Northern cement companies, he said.

Several leading companies have already shown their intent to set up operations in the Union Territory. Considerable investments in industrial and infrastructure sectors are likely to create a sizeable opportunity for cement companies with plants in Himachal Pradesh and Haryana benefitting the most, said Modi.

Published on September 18, 2019
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