Duty hike on petcoke to raise cement prices

Cement prices are likely to go up by ~3-4 a bag by midJanuary because the government has decided to hike the import duty on petcoke from the current 2.5 per cent to 10 per cent, following the Supreme Court giving the go ahead to cement companies to use the fuel despite a ban on it.

Sector analysts projected the hike would result in the average cost of production for cement firms going up by ~5060 a tonne and it was likely that they would pass on the rise to the consumers. “In case they (cement companies) are not passing it on, their Ebitda (earnings before interest, tax, depreciation, and amortisation) is likely to get affected and under the current scenario, no company will wish for it,” an analyst with stockbroking firm Motilal Oswal told Business Standard.

The demand for cement, according to ratings agency ICRA Ratings, is likely to remain modest with an increase of just one per cent for the year as the expected rebound in the third quarter didn’t happen. According to Sabyasachi Majumdar, senior vice-president and group head at ICRA Ratings, during AprilNovember, cement production declined by 165.6 million tonnes (mt) against 168.3 mt on a year-on-year basis in the face of lower demand.

“Factors like the Real Estate Regulatory Authority (RERA) Bill impacted sales in west India while east India and Tamil Nadu were impacted by sand shortage. Rural demand also failed to pick up and weak housing activity resulted in cement demand not growing,” Majumdar told Business Standard.

Analysts are projecting the demand will pick up in January because infrastructural construction activities are poised to go up. Cement companies, on the other hand, despite the import duty going up, are expected to continue using petcoke rather than imported or domestic coal.

On a cost comparative basis, the price of petcoke is 10-12 per cent higher than imported coal prices but since its requirements by volume are much lower than those of coal, it is cost-effective for cement makers to use petcoke. A senior executive of a cement firm said that owing to petcoke’s high gross calorific value (GCV), a low amount of this carbon variant was needed as compared to coal.