Construction Industry News
Rising fuel costs in the wake of tensions between Russia and Ukraine will impact Indian cement producers, which are already reeling under rising raw material and energy prices.
The price of Brent oil rose 3.08% a barrel Tuesday evening to $98.3, while West Texas Intermediate (WTI) rose 4.2% to $94.9. Power and fuel prices of key players – Ultratech Cement, Ambuja Cements and ACC Limited – are up 39%, 58% and 26% in the December quarter. Fuel prices will also affect the logistics costs of companies, which stumble over lower demand.
The prices for energy and logistics together make up about 60% of the total prices of cement makers. Raw material prices rise to about 13-15%. The energy costs of Ultratech, the largest cement producer with a production capacity of 114.55 million tons per year (mtpa), rose 39% year-on-year to Rs 1,327 per tonne in the December quarter.
The logistics prices increased by 4% per annum to Rs 1,229 per tonne. Raw material costs -- fly ash and gypsum -- increased 7% year-on-year (YoY) to Rs 538 per tonne. The sales volume decreased slightly by 3% to 23.13 million tons (mt).
For Ambuja, which has a capacity of 31.45 tons per annum, freight and forwarding costs have fallen by 4.5% to Rs 1,178 per ton in the December quarter, but fuel costs have increased by 58% to Rs 1,572 per ton. Raw material prices rose 7.9% to Rs 408 per tonne.
The sales volume of cement and clinker increased marginally from 7 million tons to 7.2 million tons. Ambuja's subsidiary ACC has noticed that its power and fuel prices have increased by 26% to Rs 1,165 per tonne in October-December. It has cut freight and forwarding costs by 1% to Rs 1,234 per tonne. Raw material costs increased by 13% to Rs 490 per tonne. Nevertheless, cement sales volume grew by only 1% to 6.57 million tons.
Taking into account current trends in energy costs and cement costs, they will reduce earnings before interest, taxes, depreciation and amortization (EBITDA) in 2022 (of Ambuja) by 14%, Edelweiss says in his report. In all likelihood, margins bottomed out in the December quarter and should see a steady recovery ahead.
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