Cement stocks fall up to 4% after SC requests states to prohibit use of pet coke
Cement stocks reeled under pressure on Monday after the Supreme Court asked all states and Union Territories to consider prohibiting the use of pet coke and furnace oil by industries.
Shree Cements, UltraTech Cement, JK Cement, JK Lakshmi Cement, Ambuja Cements, India Cements and ACC fell 1-4 percent.
Earlier, the Apex Court had banned the usage in states of UP, Rajasthan and Haryana. Further the government is now considering banning import of pet coke – a cheap but polluting fuel widely used by cement, paper, brickkiln, chemicals and textile industries.
According to Stewart & Mackertich Research, the companies which are expected to be impacted are Shree Cements, Ultra Tech Cement, JK Cement, JK Lakshmi Cement, Ambuja Cements, India Cements and ACC, given their usage of pet coke levels in their plants, especially in the above mentioned three states.
Morgan Stanley feels Shree Cement will be worst hit, if it happens, as it has 100 percent exposure to petcoke and North India accounts for 75 percent of its volumes.
ACC and Ambuja Cements has kept its dependence on petcoke low between 65-67 percent, the exposure of companies like UltraTech Cement, JK Cement and JK Lakshmi Cement to petcoke is in the range of 75-85 percent. Shree Cement’s exposure, however, is 100 percent, India Ratings said.
According to Stewart & Mackertich Research, if this ban comes in action, then all cement companies would have to face the brunt of it, however, production is unlikely to be impacted negatively for a long time as most of cement companies have tailored their plants to either use petcoke or substitute it with coal and hence, the switchover wouldn’t be a problem and can quickly shift to coal.
Citi feels the impact on EBITDA (earnings before interest, tax, depreciation and amortisation) of cement companies could be around 1-5 percent without a cement price hike.
The only option left with cement companies is that they can raise prices to offset the negative impact.
Experts feel the current fall in cement stocks should be bought into.
According to SP Tulsian of sptulsian.com, the pet coke ban is a positive move. “If we see the situation how the ban has been imposed by Supreme Court only on three states, then maybe I do not think there is any need to fear that it will get spread to the entire country,” he said.
He further said if the pet coke ban happens, it should be used as a buying opportunity because the cost differential even if it happens on migration to coal, the cost differential will not be too high because of the gap between petcoke and coal having narrowed down.
The beneficieries of pet coke ban could be Coal India and Gujarat Mineral Development Corporation that rallied 2 percent and nearly 5 percent, respectively.