Continuous shrinking of coal linkages from Coal India Limited (CIL) to below 50 per cent has irked the cement industry, which heavily depends on coal and captive power plants for its production.
Cement makers said that declining amount of cheap coal was hitting them hard as production cost was going up.
The 205 million tonne domestic cement industry requires around 29 million tonnes of coal for cement making for the current financial year, but what it is getting is not even 14 million tonnes. In FY03, linkages made up 62 per cent of the entire coal requirement, which fell to 58 per cent by the end of the Tenth Five-Year Plan (2002-2007).
| COAL REQUIREMENT OF CEMENT INDUSTRY | |
| Year |
Coal required* |
Source: Report of the working group on cement industry for Eleventh Five-Year Plan
Ambuja Cements managing director A L Kapur said: “The coal supply through linkages has slipped to 45 per cent. This is adversely affecting the industry.”
In addition to cement making, most of the cement players have set up captive power generation capacities to the extent of 60 per cent of their requirement due to erratic supply from the state power grids. This further requires 11 million tonnes of coal in FY09.
A K Saraugi, chief financial officer of the Kanpur-based JK Cement, said, “Our monthly need of coal is 70,000 tonnes, out of which we get only 10,000 tonnes through linkages. We are more dependent on the open market to buy coal where we have to pay a hefty premium of 60-70 per cent.”
Since power sector is getting preference over the cement sector, the industry feels discriminated. It says that access to cheap domestic coal is being snatched away from the industry, forcing it to import coal from the expensive open market.
Currently, the landed cost of coal through linkages is around Rs 3,000 per tonne whereas in the open market the price hovers between Rs 4,000 and Rs 5,000 per tonne. Though the cost of imported coal in the last two months has decreased from $200 per tonne to around $90 per tonne, industry players said it would benefit only those firms (which are fewer) which have their units located near the coastline.
The domestic industry normally imports coal from South Africa and Indonesia. Comparatively, imported coal is dearer than the domestic fuel, but higher calorific value and less ash content makes it outperform the domestic coal.
Firms like ACC, the country’s largest cement maker, meet most of their requirement from the domestic market since their plants are located away from the coast.
Already, the September quarter of FY09 showed the impact on cement firms with their profitability and margins going down. “With coal prices in the open market up, and our inability to pass on the increased costs to the consumers, industry players are being squeezed,” added Saraugi.
Moreover, the newer upcoming units in the cement industry are not being given the linkage facility. “Lessening linkages of coal already has its impact on the industry. Now, with no linkages to the new cement plants, the production costs are going up,” said H M Bangur, president of the Cement Manufacturers’ Association and managing director of Rajasthan-based Shree Cements.
The industry added around 30 million tonnes of fresh capacities in FY08 and is likely to add similar capacities in FY09 as well.
