Petcoke prices begin to harden again: should cement firms be worried?
Petroleum coke (petcoke) prices, which declined modestly in August, have begun to harden.
The spike in prices escalated after tropical storm Harvey hit the US. Operations of oil and gas refineries were disrupted by the hurricane that led to production shutdowns, causing a shortage of petcoke.
Petcoke is derived from oil refining and is a key input material for cement producers. Many Indian cement makers rely on imported petcoke that is mainly acquired from either the US or Saudi Arabia.
As Chart 1 shows, the price of imported petcoke has surged by around 14% in the past one month.
“Prices for petcoke in the US Gulf have increased roughly 10% in the past few weeks, as spot supply tightened as a result of refinery closures due to Hurricane Harvey. Market participants estimate roughly 500,000 tonnes of petcoke production was lost due to the closures, which has meant a lack of available tonnes in the spot market as overseas demand remains strong,” Andrew Moore, managing editor of Platts Coal Trader, part of S&P Global Platts, told Mint.
In 2016, India imported 8.3 million tonnes of US petcoke, he added.
This comes at a time when cement companies are already reeling under higher cost pressures. Prices of imported coal and diesel have also remained on the higher side in the recent past. Consequently, raw material and freight costs have eaten into the margins of cement producers.
Moreover, seasonal weakness in cement prices due to lack of a significant demand revival makes it difficult for cement companies to pass on the burden of increased cost, at least in the near term.
The refining and terminal capacity in US Gulf Coast accounts for 75% of the petcoke outbound shipments of the US, said Ankur Kulshrestha of HDFC Institutional Research. The impact of the situation on imported petcoke markets has begun to reflect in the domestic market, with refiners having hiked petcoke prices to Rs7,150 per tonne (before levies) for September, he added (see chart 2).
Based on recent price movement and lower availability, some cement analysts expect domestic petcoke prices to harden further. Domestic refiners tweak prices on a monthly basis, but in case of imported petcoke, the change can be more frequent, they added. This means if supply constraints remain for a longer period of time, then new purchase contacts might happen at higher prices.
Meanwhile, cement companies have been working on enhancing their operating efficiencies using measures including improving fuel mix and reducing lead distance. But now with rising petcoke prices coupled with that of other commodities, cost pressures are unlikely to ease anytime soon for cement makers.
- 40 years later, ‘Marquee Moon’ remains a punk pioneer
- Tamil Nadu building collapse: 8 killed, 3 others injured in Nagapattinam
- News in Numbers: Ravi Shastri highest paid cricket coach with annual salary of $1.17 million
- Microsoft and Google need to tone down the war of words over software bugs
- The Mint Planner, 20 October 2017