Cement margins at risk as petcoke price hits multi-year high
If petcoke prices do not ease, realization gains will be offset by higher expenses, keeping margin growth subdued for cement makers
The price of imported petroleum coke (petcoke) has skyrocketed to multi-year high in March (see chart).
Petcoke, which is derived from oil refining, is a key input material for cement makers. Many Indian cement makers rely on imported petcoke, mainly acquired from either the US or Saudi Arabia.
Increased demand and supply shortage on the back of maintenance undertaken by refiners, is the main reason for the spike in petcoke prices.
According to Deepak Kannan, managing editor-Asia Thermal Coal, S&P Global Platts, “Supplies are tight for both US and Saudi Arabia, and refineries are hesitant to offer to India given the uncertainty around the usage within their country.”
In November, the Supreme Court banned petcoke use in a few states around the National Capital region in a bid to curb pollution.
Though the restriction was relaxed later, it was followed by an import duty hike on petcoke from 2.5% to 10%.
“Indian demand for petcoke is around 23-24 million tonne (mt)/year, while domestic supplies total up to around 14 mt/year. Suppliers are not in a rush to sell into the Indian market for there is some healthy demand from other regions like Latin America,” said Kannan in an email response.
The March quarter is a seasonally strong one for cement producers, but this time cement prices across India have seen a sharp decline.
In such a situation, any surge in operating costs will hurt margins.
It should be noted that the high diesel price has kept transportation cost elevated for cement makers.
The expectation is that imported petcoke prices will ease in April, as more refiners return following maintenance outages. If that doesn’t happen, then cement companies may have to switch to thermal coal imported from US.
But that is not a cheap alternative either.
Meanwhile, cement prices are expected to improve in the next financial year, buoyed by a pick-up in construction activity and easing sand availability in some regions.
However, if petcoke prices do not ease, realization gains will be offset by higher expenses, keeping margin growth subdued for cement makers.