Import Duty Hike May Affect Operating Margins Of Pet Coke-Importing Cement Companies
Cement manufacturers may resort to coal imports due to low domestic availability.
India Ratings and Research expects the operating margins of cement companies that use a high proportion of pet coke to be affected, following the government of India’s decision on Dec. 15 to increase the import duty on pet coke to 10 percent from the current 2.5 percent.
The increase was announced after the Supreme Court of India decided to lift the ban on the use of pet coke on Dec. 13.
Cement manufacturers may resort to coal imports due to low domestic availability. Cement manufacturers prefer using pet coke, as it contains high calorific value (7,500-8,500 Kcal/kg), to non-coking coal (2,200-7,000 Kcal/kg).
The rise in the import duty on pet coke will result in a rise in power and fuel cost per metric ton to around Rs 7 per bag.
Operating margins of cement manufacturers could fall by about 1 percent, if increased cost is not passed on to end users.India Ratings
Total pet coke consumption in India increased by 34 percent in October 2017 to 2 million metric tons, compared with the level recorded for October 2015. Of the total pet coke consumed in India during April 2016 to September 2017, about 50 percent was sourced domestically and the remaining through imports.
According to India Ratings’ assessment, 35 percent of the total pet coke imports were consumed by the cement industry.
India Ratings and Research, a wholly owned subsidiary of Fitch Group, is a SEBI and RBI accredited credit rating agency operating in the Indian credit market.