Cement Sector Update on sharp uptick in International Coal prices - ICICI Direct

Posted On : 2022-03-14 10:22:06( TIMEZONE : IST )

Cement Sector Update on sharp uptick in International Coal prices - ICICI Direct

International coal prices have seen a sharp uptick with South African coal doubling to $446 in just 10 days due to Russia-Ukraine crisis. Currently international coal prices are hovering at $370+/tonne, still up 106% from Q3FY22 exit rate and 4.2x higher on a YoY basis. Petcoke prices are also up over 100% YoY, 11% QoQ and currently hovering at ~$225/tonne. Although these steep rises in prices are unsustainable in the long run, these would put cement companies again on the back foot in terms of operating rates at least till the time the situation comes back to normalcy as power & fuel accounts for 27% of total costs. Since most cement companies have average two months of fuel inventories, we will see full impact of the cost escalations from Q1FY23E onwards. However, companies with higher domestic coal linkages will be least affected. Apart from higher coal/petcoke prices, the recent increase in crude prices may also lead to a rise in the freight costs. Overall, we expect cement sector margins to decline 98 bps in Q4FY22E and further by 498 bps in FY23E. Despite these ongoing cost related challenges, demand outlook is expected to stay healthy from long-term perspective. With recent marketwide sell-offs, valuations of many cement companies have now come down to compelling levels on EV/tonne basis making them attractive from a long-term perspective.

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Source : Equity Bulls


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