Cement corporations have been battling extreme enter value pressures for the previous few quarters. Producers did not adequately hike costs due to low demand, thus conserving their working margins below strain. Nevertheless, traders in cement shares can now heave a sigh of aid as petroleum coke, or pet coke, costs have began to ease.
The typical US pet coke value fell 10% month-on-month (m-o-m) in June to $245/tonne and an identical drop was mirrored within the home pet coke value in July, identified analysts at ICICI Securities Ltd in a report on 4 July. Because the chart alongside reveals, home pet coke costs have fallen from ₹22,473/tonne to ₹20,114/tonne in July.
Some giant corporations have additionally began sourcing coal from Russia, which is accessible at a 20% low cost on a landed-cost foundation, mentioned the ICICI Securities report. Energy and gas prices account for 25-30% of the sector’s complete working value.
This can be a optimistic from a medium-term perspective, however Q1FY23 earnings efficiency for the sector is prone to be muted, particularly on the margin entrance.
The decline in coal and pet coke costs will mirror in working margins with a lag of some quarters, in keeping with Ronald Siyoni, assistant vice chairman, analysis, Sharekhan by BNP Paribas. “We anticipate margin enchancment led by decrease vitality prices to be seen from H2 FY23. The extent of margin enchancment would rely upon the combo of gas used—imported or home coal, imported or home pet coke and various vitality gas utilization,” he mentioned.
In the meantime, the pattern in cement costs is discouraging. Supplier channel checks by brokerages confirmed cement costs declined from Might to June throughout areas. In opposition to the backdrop of excessive enter prices, a drop in cement costs would imply unimpressive realisations development.
“Our interactions with sellers, gross sales executives, and clearing and forwarding brokers within the cement sector revealed that after a subdued Might, cement corporations tried value hikes in early-June however barring just a few markets with flat costs, different markets registered an additional dip in June,” Elara Securities (India) Pvt. Ltd mentioned in a report on 28 June. Consequently, the all-India common retail cement value corrected by ₹11 per bag m-o-m to ₹379 in June. One bag weighs 50 kg. Market intermediaries don’t anticipate a value hike in July due to seasonal weak spot with the onset of monsoon, the Elara Securities report mentioned.
In easy phrases, which means for margins to see a significant enchancment, the sector might want to see sustained gas value discount.
Supply: Live Mint