Rising pet coke prices may take a toll on cement cost

12 December 2016

After demonetisation, which has hurt construction and housing demand in the short term, cement companies face another challenge -rising pet coke prices. In the past six months, price has risen by over 36% year-to-date to Rs 6,350 per tonne following higher crude oil price. Pet coke forms 30-40% of power and fuel cost of cement companies. This should further impact the earnings of cement companies in the coming quarters.

Of the total cement demand in the country, nearly 40% is from rural housing and 20% from urban housing. The scarcity of cash due to demonetisation has delayed construction activities. The slowdown in the housing sector is expected to impact the cement sector.

An analyst with a leading domestic brokerage said: “Builders in urban areas are facing cash crunch. Due to withdrawal of high currency notes, a large part of unaccounted money would not go in real estate and this would result in fall in real estate prices. Given this, urban real estate developers would be cautious in embarking on new construction. On the rural side, individuals are struggling for adequate money for daily sustenance due to restrictions on cash withdrawal. In such a situation, the focus of individuals in rural areas would not be on building or repairing houses.“ Given this, the earnings growth of most cement companies in the coming quarters is expected to be subdued.

A Centrum Capital report says cement demand has significantly contracted during November (down 2070% month-on-month) post demonetisation. The southern region is the least impacted with close to 20% MoM decline. On the whole, dealers do not expect a major recovery in cement demand or in prices in December, says the report.

Source – ET