The ongoing Russia-Ukraine conflict has driven thermal coal prices to an all-time high compelling Indian cement producers to use more pet coke due to competitive prices.
Saudi-origin pet coke (9% sulphur) prices are assessed at $270/t CFR India, while Australian NAR 5500 kcal/kg coal prices are heard at $300/t FOB Newcastle.
Indian buyers are not taking interest in US-origin coal due a high voyage time of 45-60 days, especially during a period of uncertainty in the international markets.
Changes in buying pattern
Even since late 2020 after China’s unofficial ban on Australian coal imports, Indian cement manufacturers had been using more thermal coal, especially Australian-origin coal till the first half of 2021.
By H22021, a sharp rise in thermal coal prices amid supply constraints in Australia and domestic coal shortage in China forced cement producers to switch back over to pet coke.
However, during this period, pet coke prices also gained reaching same levels as that of thermal coal, further prompting cement manufacturers to buy either of the two at costlier rates or to use domestic pet coke, which was comparatively cheaper compared to imported material.
With the onset of the war in recent weeks, Indian cement players are heard to be relying more on imported pet coke from Saudi Arabia and domestic pet coke, which is marginally cheaper than the imported fuel.
Major refinery Reliance Industries Ltd. (RIL) has kept pet coke prices fixed at INR 17,972/t for Mar’22, up by INR 3,450/t m-o-m.
Domestic demand scenario
Following the surge in coal prices last year, cement companies were unable to fully pass on the increase in power and fuel costs in the Oct-Dec’21 quarter. Cement manufacturing is a power-intensive process and power and fuel account for about 30% of the total cost.
Indian cement prices have already increased by 35% in the last two months due to a surge fuel costs. Currently, the price for one bag of cement is at INR 430, which was INR 325 per bag in Dec.
This has impacted the cost of construction of ongoing projects. According to market participants, rising raw material prices are not only affecting construction and procurement but are expected to hit demand for new projects.
“Jan-Jun (before the monsoon onset) is usually a peak period for the Indian construction sector. However, this year we are seeing projects getting stalled because they are being rendered unaffordable due to the sharp rise in raw material costs. We have no option but to pass on the prices to customers. But in case demand falls and end-users refuse to accept the high prices, we have to bear the burden of increased fuel costs,” a Delhi-based cement manufacturer told CoalMint.
Short-term outlook
Amid persistent supply constraints in the major coal exporting countries, any downward correction in thermal coal prices seems unlikely in the near term even if the Russia-Ukraine conflict is resolved soon, which seems unlikely.
Thus, demand for thermal coal from the Indian cement sector is expected to drop in the coming months as manufacturers would have no option but to keep using more of imported as well as domestic pet coke in their fuel mix.
Leave a Reply