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Cement prices to increase by January as govt hikes import duty on petcoke

Total petcoke consumption in India increased by 34% in October this year

Avishek Rakshit  |  Kolkata 

Cement prices to increase by January as govt hikes import duty on petcoke

Despite relaxation on the use of petcoke by cement companies, the prices of cement are likely to go up by Rs 3-4 a bag by mid-January, as the government has decided to hike the import duty on petcoke from the current 2.5 per cent to 10 per cent. Sector analysts projected that the hike will result in the average cost of production for cement firms going up by Rs 50-60 a tonne and it is likely that firms will pass over the rise in higher costs to the consumers.

"In case they (cement companies) are not passing it on, their (earnings before interest, tax, depreciation and amortisation) is likely to get affected and under the current scenario, no company will wish for it", an analyst with stockbroking firm, told Business Standard.

As per rating agency Icra, the demand for cement is likely to remain modest at just one per cent for the year as the expected rebound in the third quarter of the current fiscal year didn't take place.

According to Sabyasachi Majumdar, at Ratings, during April-November, cement production declined by 165.6 million tonnes (mt) as against 168.3 mt on a year-on-year basis in face of lower demand.

"Factors like (RERA) Bill impacted sales in west India while east India and Tamil Nadu were impacted by the sand shortage. Rural demand also failed to pick up and weak housing activity halted the demand for cement", Majumdar told this newspaper.

Nevertheless, analysts equivocally projected demand to pick up January onwards as elections in Gujarat and are over and infrastructural construction activity is poised to go up which will pull up the demand.

Cement companies, on the other hand, despite the import duty going up, are projected to continue using petcoke rather than imported or domestic coal.

On a cost comparative basis, petcoke price is 10-12 per cent higher than imported coal prices but since its volume requirement is much lower than coal, it is cost effective for the cement makers to use petcoke.

A senior official from a cement firm reasoned that owing to petcoke's high gross calorific value (GCV), a lesser amount of this carbon variant is needed as compared to coal. Petcoke has a GCV of 7,500-8,500 kcal while imported coal's GCV is between 5,000-6,000 kcal. It is even lesser for domestic coal which varies between 2,200-7,000 kcal.

"Thus, if we switch from petcoke to coal, volume requirement of this input material would go up by 30-40 per cent", the official noted.

Interestingly, the production cost for relying more on petcoke is the lowest.

As per India Ratings and Research, the average cost of production per tonne for Shree Cement, which is 100 per cent dependent on petcoke, stands at Rs 425 while it is Rs 503 a tonne for Ultra Tech Cement, which uses 74 per cent of petcoke.

The same for Ambuja Cement, which uses petcoke to cater to 62 per cent of its fuel needs, stands at Rs 852 a tonne.

However, ACC Cement, which has a balanced portfolio comprising linkage coal as the major fuel component, has a higher production cost of Rs 1,034 a tonne.

Total pet coke consumption in India increased by 34 per cent in October this year at 2 mt of which around 50 per cent was sourced via imports. It has assessed that 35 per cent of the 1 mt imported petcoke was consumed by the cement industry alone.

The analyst with projected that only increased domestic coal availability by can upset the dependence on petcoke. However, with the coal behemoth now scaling up production and routing the same to coal-starved power plants on a war footing, the alternative looks unviable.

Company Pet Coke Usage (% of total fuel consumed) Power & Fuel cost (Rs/tonne) FY17
Ambuja Cements Ltd 62 852
The India Cements Ltd 73 551
J. K. Cement Ltd 75 846
JK Lakshmi Cement Ltd 80 767
Mangalam Cement Ltd 96 474
Shree Cement Ltd 100 425
Ultra Tech Cement Ltd 74 503

Source – India Ratings

First Published: Wed, December 20 2017. 01:51 IST