Aug 31, 2016

Hike in Coal Freight charges to impact domestic cement industry

New Delhi: Hike in coal freight charges by Railways will adversely impact the domestic cement industry with a hit of over Rs 2,000 crore and is likely to force companies to pass on the burden to consumers, industry experts say.

Last week, Indian Railways facing a shortfall in freight loading, rationalised its coal tariff by reducing long-distance transportation rates, while raising it for short distances. It also imposed a Rs 110 per tonne coal terminal surcharge at loading and unloading for distances beyond 100 km.
As per the new rate, coal loading would cost Rs 712 per tonne for transportation up to 497 km now as against Rs 702. It will be Rs 2,138 a tonne for 1,807 km transportation now as against the existing rate of Rs 2,348.

Cement Manufacturers’ Association President Shailendra Chouksey said the move will have an inflationary impact on the sector.

Coal, which is the main raw material for cement will on an average suffer a 20 per cent increase in freight that would translate into increase in input cost for the manufacturers, he added.

Besides, the coal freight hike will impact the cost of power as its generation is coal dependent, he said.

“With power being another major cost centre for cement production, the effect on the sector would be cascading. It is expected that cement industry will suffer a combined impact of over Rs 2,000 crore.

“In the current situation, cement players would find it difficult to absorb this increase and therefore, I will not be surprised if the cement prices go up,” Chouksey said.

According to Edelweiss Securities, in near term, increase in freight rates is negative for cement and power utilities (merchant players).

Commenting on the rate hike, it said railway data suggests that average lead distance of coal shipments is declining and stands at around 486 km versus 545 km in 2014-15 fiscal.

“Hence, one can infer that such moves may bolster revenue for Indian Railways in the short term, however, we are unsure if this tariff structure will arrest the long-term declining market share trend of rail in shipments,” it added.

On doubts over the move helping railways to check the declining market share in the long therm, it said that overall leads in freight movements both in bulk/ container have been structurally declining.

“Probably, in the short run none of the bulk cargo shipments may move from rail to road. But, as seen in the cement sector, over a period of time the shift does take place,” the firm said.

It’s obvious to expect that a decrease in diesel prices will bring positive news for businesses. However, despite two successive reductions in diesel rates this month, freight charges remain the same. The reason behind this can be the already reduced freight rates during the first quarter of this fiscal year which makes further reduction in prices infeasible.

Diesel prices were slashed by Rs.2.01 per litre on August 1 and Rs.2 per litre on August 16 and truckers are currently expressing their helplessness over the unswerving freight rates.

Freight charges were already reduced during the April-July period by 20 to 22 percent (as compared to the same period last year) owing to low demand. This low demand has been aggravated due to a sharp fall in goods transportation, especially perishable commodities such as fruits and vegetables.

However, truckers remain optimistic and are hoping that increased consumer spending due to a salary hike after the 7th pay commission is implemented, good monsoon that will yield a good post-monsoon harvest in October and peak festival season will increase demand for truck fleets and hence, will improve the condition of the trucking industry.

Bhim Wadhwa, President, All India Motor Transport Congress (that represents 75 lakh truckers in the country), said,“Overall there is a slowdown in the economy and it has affected the truck industry also. The demand for trucks stands at 40% currently, with 60% of the fleet being unutilised. With extremely weak demand for transportation, the freight rate has already gone down by 20-22% in the past one year.”

Coal freight tariff rationalisation will have minimal impact on power sector: Piyush Goyal

The freight of coal which had to go to far-flung places was more, they (railways) have reduced it. In far ahead places, the power is very expensive.” Supporting the move, the minister said railways have reduced the freight for long distances so that the domestic coal becomes more viable in front of imported coal

Rationalisation of the coal freight tariff by railways will have minimal impact on power tariff and the move would gradually lead to domestic fuel replacing imported coal, Power Minister Piyush Goyal said today. He was replying to a question on whether railways’ announcement on rationalisation of coal tariff will have any impact on electricity tariff. “No…nothing particular. We are doing so much of savings. There are many other ways. This small cost will not make any difference. Even if the coal price increases by Rs 100, there is an impact of a few paise,” he said. The minister further said: “There would be a small impact…They (railways) said it(the move)is revenue neutral. The freight of coal which had to go to far-flung places was more, they (railways) have reduced it. In far ahead places, the power is very expensive.” Supporting the move, the minister said railways have reduced the freight for long distances so that the domestic coal becomes more viable in front of imported coal. “This year we are hoping that we reduce the coal imports by Rs 40,000 crore. That is our mission which is why railway freight rationalisation is a very positive step,” the minister said. Facing shortfall in freight loading, railways had last week rationalised coal tariff by reducing the rate for long-distance transportation and increasing it for short distance. Coal imports during July declined by 11.1 per cent to 18.03 million tonnes (MT) on the back of higher domestic availability of the fossil fuel, according to mjunction services, an online procurement and sales platform jointly floated by SAIL and Tata Steel. The government had earlier said the coal imports will further come down in the ongoing fiscal on account of increased domestic output.

 

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