Petcoke penchant lands Rs 3800cr punch on coal miners: Crisil

Coal miners, whose profitability has eroded due to power sector woes, are facing another challenge as cement makers are substituting 50 per cent of their coal requirement with petroleum coke (petcoke) to fire their kilns, translating into a revenue loss of up to Rs 3,800 crore, a report by Crisil Research has said.
An analysis shows that adjusting for its higher calorific value, petcoke replaced approximately 14 million tonne of high-grade coal last fiscal. This translated into a foregone revenue of Rs 3,800 crore (at Rs 2,800 per tonne) and operating profit of over Rs 2,000 crore assuming Coal India's average production cost for domestic coal miners, it said.

This is particularly relevant considering Coal India has an inventory of almost 60 million tonne at the end of the fiscal year.
Crisil sees petcoke usage at cement makers continuing to remain high, given the favourable price competitiveness in the medium term. It would also mean the coal demand scenario would remain bleak. Coal production was already flat in the first half of the current fiscal, it said.
"What would worry miners more is that that cement companies consume high-grade coal, which is sold at a premium pricing. The shift to petcoke is also reflected in the muted interest shown by cement players in the linkage auctions held in June 2016," Prasad Koparkar, Senior Director, Crisil Research, said in a statement.

On average, petcoke was about 10 per cent cheaper than coal in FY16, and about 20 per cent cheaper in the first half of fiscal 2016-2017, the report noted.

Consequently, consumption at kilns surged, reaching about 10 million tonne last fiscal, and contributing to over half of the energy requirement of cement makers, compared with just 20 per cent in 2010-2011. While Coal India offered 2.1 million tonne per annum (mtpa) to cement producers, less than a third was purchased, that, too, with barely any premium, the report maintained.
"The cost competitiveness of petcoke was driven by crude oil prices crashing by half to under USD 50 per barrel in the past two years. It is also helped by the levy of the Clean Environment Cess on coal, which was doubled in each of the last 3 years to Rs 400 per tonne in 2016-2017, pushing up the delivered cost of coal by more than 5 per cent."

In addition to its impact on coal producers, this shift is also likely to impact Government's efforts to reduce reliance on imports for fuels, the report said.