Petcoke to Remain as Predominant Fuel for Cement Producers

Cement producers in India, the largest Petcoke consumers in the country, will continue to use the refinery by-product as the principal fuel as the disruption caused by the Supreme Court ban on the usage of the fuel is now over. Subsequent to the apex court relaxing its ban on 13Dec’17, allowing usage of Petcoke by the cement and the lime industries, the Government of India had raised the Basic Customs Duty on imports of Petcoke into the country to 10% from the erstwhile 2.5%. However, the duty has eventually been brought down to 5%.

The apex court had ordered a ban on usage of Petcoke in industrial units with effect from 1Nov’17 in the Delhi/NCR, and subsequently the ban was extended to Uttar Pradesh, Haryana and Rajasthan. The ban was actuated on the ground of atmospheric pollution caused by burning of the fuel in industries due to emission of the constituent Sulphur.

Petcoke is the most sought after fuel in the cement industry, mainly due to the higher calorific value of the fuel vis-à-vis that of coal. Typically, the calorific value of Petcoke is at around 7,500-8,500 KCal, while, that for coal produced in USA (which is used by the cement industry) is at around 5,000-6,000 KCal.

Despite, the prices of Petcoke being higher by around 10-12% than the prices of coal imported from USA, the quantity of Petcoke required for the same amount of heat generation is also much smaller, thus, the usage of Petcoke makes more economic sense for the cement producers. Normally, 30-40% more coal is required to generate the same amount of heat obtained by burning Petcoke, thus neutralizing the economic benefits of using the coal.

With the relaxation of the Supreme Court ban, bookings for importing Petcoke among cement producers have gained substantial momentum. On account of the rising import demand in the country, refineries in the two key international regions—USA and Saudi Arabia—have refrained from lowering the export offers for the fuel.

The latest offers for Petcoke (6.5% Sulphur) from USA are assessed at around USD 95/MT CFR India. And, the recent offers for Petcoke (9% Sulphur) from Saudi Arabia are assessed at around USD 92/MT CFR India.

Source: CoalMint Research

On week-on-week basis, these offers are almost at the rates in the week last. Given, the demand scenario, the offers are likely to move marginally upwards in the coming days.

It is due to the higher prices in the international markets, Indian refineries also have raised their ex-works prices. Traditionally, Indian refineries set their ex-works prices on the basis on import price parity, which means the prices in India rise and fall in accordance with the price movements in the international markets.

With effect from 16Dec’17,Reliance Industries Limited, the largest Petcoke producer in India, raised its ex-works price by INR 500/MT to INR 8,150/MT; while, Essar, the second largest producer in the country, also hiked its ex-works price by INR 500/MT to INR 8,135/MT.

Source: CoalMint Research

At the same time, Mangalore Refinery and Petrochemicals Limited also lifted its ex-works price by INR 340/MT to INR 7,470/MT.

As a matter of fact, India is the second largest Petcoke consuming country is Asia, after China. Demand for the fuel in India has been rising on account of the widespread usage in several industries. In FY18, demand for Petcoke in India has been growing at a rate of around 1.19% month-on-month.

Source: CoalMint Research 

Nevertheless, the rise in the input cost will render cement to become costlier as the producers will pass on the incremental cost to the customers.