Pet­coke ban in NCR: ce­ment firms should not be wor­ried just yet

Mint Asia ST - - Mark To Market -

Chart 1:

Petroleum

coke (pet­coke), a key in­put ma­te­rial for ce­ment pro­duc­ers and a highly pol­lut­ing fuel, is in the spot­light once again.

Given its favourable cost, most ce­ment com­pa­nies switched from coal to pet­coke over the past few years. On an av­er­age, more than 70% of the fuel re­quire­ment of ce­ment mak­ers is met through pet­coke. Pet­coke us­age in In­dia posted a com­pound an­nual growth rate of 24% over fis­cal years 2013 and 2017 (FY13-FY17 ( see chart 1).

In a bid to con­trol the high lev­els of pol­lu­tion in Delhi and the Na­tional Cap­i­tal Re­gion (NCR), the Supreme Court on 24 Oc­to­ber 2017 banned the use of pet­coke and fur­nace oil in NCR ef­fec­tive from 1 Novem­ber.

The apex court also made it clear that it would ban the use of these fu­els in the neigh­bour­ing states of Ra­jasthan, Haryana and UP if their gov­ern­ments did not pro­hibit their use in in­dus­tries by 1 Novem­ber.

Of the three, the state of Ra­jasthan is sig­nif­i­cant from the per­spec­tive of ce­ment pro­duc­tion. It ac­counts for 12% of the coun­try’s over­all lime­stone re­serves, hence sev­eral in­te­grated/clink­er­iza­tion units are sit­u­ated there. Thank­fully, only the dis­tricts of Al­war and Bharat­pur in Ra­jasthan fall in NCR. Since no ce­ment com­pa­nies have in­te­grated plants there, ce­ment mak­ers can heave a sigh of re­lief for now, say an­a­lysts.

In case this or­der on pol­lut­ing fu­els is ex­tended to the whole state over a pe­riod of time, then cer­tain regional ce­ment mak­ers would have to bear a higher brunt on their op­er­at­ing mar­gins com­pared to pan-in­dia ce­ment pro­duc­ers. As chart 2 shows, com­pa­nies with high ex­po­sure to Ra­jasthan in­clude Shree Ce­ment Ltd (72%), JK Lak­shmi Ce­ment Ltd (78%) and Jkce­ment Ltd (71%).

Mean­while, the En­vi­ron­men­tal Pol­lu­tion (Pre­ven­tion and Con­trol) Author­ity for NCR has rec­om­mended that the use of pet­coke be al­lowed in ce­ment plants where emis­sions can be con­trolled. Sub­se­quent or­ders from the Supreme Court and/or states on this mat­ter would be keenly watched.

On the flip side, there will be a ma­te­rial im­pact on the ce­ment sec­tor if the gov­ern­ment de­cides to in­crease the cost of pet­coke to re­duce its at­trac­tive­ness, in-line with the cess ap­pli­ca­ble on coal in the coun­try, broking firm JM Fi­nan­cial In­sti­tu­tional Se­cu­ri­ties Ltd cau­tioned in a re­port. A clean en­vi­ron­ment cess of Rs400 per tonne is cur­rently levied on coal.

In the Septem­ber quar­ter of FY18, op­er­at­ing costs of most ce­ment com­pa­nies surged on a year-on-year ba­sis, largely due to el­e­vated pet­coke prices.

Cur­rently, the pet­coke price is hov­er­ing around $105 per tonne.

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