Ind-Ra: Import Duty Hike May Affect Operating Profitability Levels of Pet Coke-Importing Cement Companies

India Ratings and Research (Ind-Ra) expects the operating margins of cement companies that use a high proportion of pet coke to be affected following the government of India's decision, on 15 December 2017, to increase the import duty on pet coke to 10% from the current 2.5%. The increase was announced after the Supreme Court of India decided to lift the ban on the use of pet coke on 13 December 2017.

Cement manufacturers may resort to coal imports due to low domestic availability. Cement manufacturers prefer using pet coke, as it contains high calorific value (7,500-8,500Kcal/kg), to non-coking coal (2,200-7,000Kcal/kg). The rise in the import duty on pet coke will result in a rise in power and fuel cost per metric ton to INR5-7 per bag. According to Ind-Ra, operating margins of cement manufacturers could fall by about 1%, if increased cost is not passed on to end users.

 

Total pet coke consumption in India increased by 34% in October 2017 to 2 million metric tons (compared with the level recorded for October 2015). Of the total pet coke consumed in India during FY17-1HFY18, about 50% was sourced domestically and the remaining through imports. According to Ind-Ra's assessment, 35% of the total pet coke imports were consumed by the cement industry.

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