Petcoke issues could nudge cement firms towards coal

Thermal coal also attracts a 6% countervailing duty on import, which is where Coal India's supply assurance is relevant

Although petcoke continues to remain the preferred fuel of cement companies despite the recent import duty hike, the uncertainties around it could impel a movement back towards coal.

However, a substantial shift would need assured supply linkage from the near-monopolist home supplier, government-owned Coal India.

Cement companies had traditionally relied on coal but had begun a shift to use of petcoke over the past 10 years, as it was cost-effective. "Petcoke usually has higher calorific value and makes more economic sense to end-users," says Deepak Kannan, managing editor of Asia Thermal Coal at S&P Global Platts, the energy sector tracking entity.

The price of petcoke import on delivery at the east coast had surged in September, before losing gains and moving down. An analyst with ratings agency ICRA thinks a further 12-15 per cent increase in global petcoke prices will lead to cement makers shifting their production line towards coal.

Source: S&P Global Platts
 

"If cement companies are able to secure linkages from Coal India directly, it might be cost-competitive for them," says Rupesh Sankhe, research analyst with Reliance Securities. Beside, Coal India offers discounts rates over the notified prices for coal linkages.Thermal coal also attracts a six per cent countervailing duty on import, which is where Coal India's supply assurance is relevant. The price of the 5,500 NAR grade of thermal coal's landing cost (after import) is about Rs 5,830 a tonne, Coal India's notified price for the similar grade is Rs 2,280-2,740 a tonne.

Shree Cement, which has dedicatedly used petcoke, which made its production cost the lowest among peers, has started inching towards coal, though it is yet to change its fuel mix. It has secured two linkages from Coal India in recent auctions, at prices lower by 46-51 per cent than the notified price.

Birla Corporation, which recently acquired the cement units of Reliance Cement, has also secured a linkage.

ACC and Ambuja Cement's dependence on petcoke is 65-67 per cent. For UltraTech Cement, JK Cement and JK Lakshmi Cement, it is 75-85 per cent.

Executives from two cement makers say uncertainty around petcoke is increasing owing to environmental activism and global market dynamics. Which makes it sensible for cement makers to have a balanced fuel mix.

Kannan says recent uncertainty in India about petcoke usage has kept several buyers on tenterhooks.

A Coal India official said of their total volume which could be offered via fuel supply agreements, a fifth can be given to steel, cement and other non-power sectors. The rest is reserved for power generators.