Cement exports hit by falling prices; may add to oversupply in local market
November 9, 2009
Exports from Ultratech Cement Ltd and Ambuja Cement Ltd have declined in the second quarter (July-September) of the current fiscal even as export prices have fallen sharply from around $55 per tonne to $40 per tonne.
“The decline in exports is due to oversupply in the Gulf countries that they were exporting to. This situation is likely to continue for the next six months,” said Amit Srivastava of Karvy Stock Broking Ltd.
Generally, when exports fall, supply is diverted to the domestic market. Given the current oversupply in the local market, this is likely to lead to a price correction for other cement manufacturers in the western region.
“Fall in exports for Ultratech and Ambuja will affect not only the two companies, which are major exporters of cement, but also the other players in region. This is going to change the demand-supply dynamics in the western region. If we look at the (domestic) prices, they have corrected sharply by more than Rs25 (per 50kg bag),” said Srivastava.
While export prices are down, import prices of raw materials like coal are on an uptrend. Cement manufacturers like Ambuja Cement import high-quality coal from South Africa and the import price has surged from around $50 per tonne to $90 per tonne (inclusive of freight costs) in the past six months. It may increase by another 5%-10%, according to Srivastava.
Cement exports by Indian firms declined from 3.65 million tonnes (MT) in FY08 to 3.2MT in FY09, following the export ban imposed by the government in April 2008. Exports in FY09 accounted for just 1.76 % of the total production of 181.42MT. Ambuja Cement exported around 1.2MT in FY09 and 1.32MT in FY08.
According to a note from Emkay Research, exports in FY10 may fall 25% to 2.4MT and is likely to remain at the same level for FY11 and FY12.