An internal analysis conducted by domestic brokerage firm Nirmal Bang Institutional Equities showed that landed cost of petroleum coke (petcoke)—a key raw material input for cement producers—should increase by around 6% considering the import duty hike (see table).
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%.
It should be noted that at the time when import duty was raised, i.e. December 2017, the international petcoke price was hovering around $95-96/tonne, showed data from S&P Global Platts.
However, the price of petcoke imported from the US hit a multi-year high of $117/tonne in March this year and continues to soar, which means its landed cost should surge further.
Power and fuel costs account for nearly 30% of overall cost and in the absence of strong demand and consequently subdued prices, input cost inflation will hurt margins of cement makers in the March quarter earnings.
And expectations are that this pressure of elevated cost is here to stay, which means a relief on margins is unlikely anytime soon.
That said, increased prices may not significantly hamper demand for petcoke from cement makers.
Cement companies have little choice left when it comes to fuels because an alternative to petcoke, i.e. imported coal, is equally expensive. However, the pace of demand growth for petcoke may decline.