Petcoke imports on a rise as coal substitute

Largely due to users like cement companies opting for petcoke as cheaper option instead of coal

The coal ministry has been striving to cut down on the country's coal imports and related import bill. The coal consuming sectors, however, have shifted to imported petcoke usage, adding up to the country's import bill on the petroleum side.

According to data available with the Petroleum Planning and Analysis Cell (PPAC), the country imported 39.8 per cent more of petcoke in the last financial year. This has also made petcoke the largest contributor to the total petroleum products that the country imported in that period.

"Import of Petroleum, Oil and Lubricants (POL) products increased by 17.0 per cent during March 2017 as compared to March 2016 mainly due to increase in import of LPG," according to PPAC.

"Import of POL products increased by 21.7 per cent during April 2016 to March 2017 as compared to the same period of the previous year (2015-16) with imports of liquefied petroleum gas (LPG) and petcoke accounting for 95.0 per cent of total increase of 6.4 million metric tonnes (MMT)," added PPAC.

The rise in import of petcoke is largely attributed to end users like cement companies opting for petcoke usage as a cheaper option instead of coal. 

"Some of the end consumers who use coal due to cost economics are moving towards usage of petcoke. These decisions are being taken based on the landed cost involved for coal against petcoke and because petcoke has a high calorific value," said Rahul Prithiani, director, CRISIL Research.

According to S&P Global Platts data, in March last year, delivered-India prices of petcoke plunged to a low of $39.50/tonne, while thermal coal was trading at a higher price of about $47-$48/tonne (cost and freight) CFR India.

"Given the low landed costs for petcoke, a lot of cement companies in India shifted to using petcoke from thermal coal, leading to huge demand for seaborne petcoke cargoes," said Deepak Kannan, managing editor, Asia Thermal Coal, S&P Global Platts.

Whether the trend would continue, will largely depend on which side petcoke and coal prices are likely to move. 

"It is difficult to estimate, if prices remain lower, the trend is unlikely to change," said an oil and gas analyst who did not wish to be identified.

Others like Prithani expect the trend to continue. "Consuming sectors going forward will take this call based on the pricing, where petcoke generally trades at a discount to coal and the trend of rising imports should continue," he said.

The end consumers so far have been playing it safe by staying flexible in their procurement based on prices movement. 

"Indian buyers are price sensitive and they tend to procure either thermal coal or petcoke depending on whichever makes more economic sense. Thermal coal prices are beginning to drop in recent days and there seems to be some buying interest coming back for South African thermal coal while demand for petcoke is slowing due to higher landed prices," Kannan said.

"There had been restocking activities for petcoke due to the upcoming Indian monsoon season in recent weeks, but buyers are currently not in a hurry to procure any fresh cargoes as they expect petcoke prices to soften going forward," Kannan added.

The volume of petcoke imports, however, still remains small compared to coal. For the period of April-December 2016, India's total coal imports was at 144.87 million tonne, according to data available with PIB. Petcoke imports for the financial year 2016-2017 was at 14 million tonnes.

There is a word of caution as petcoke prices are currently on the rise. According to S&P Global Platts data, at present petcoke prices have remained sharply high at about $95-$96/mt CFR India, compared to thermal coal with a heating value of 5,500 kcal/kg NAR currently trading at about $73.90/mt CFR India East. 

In addition to price movement, dry bulk freight rates are also expected to impact the India buyer's decision.

Further, what could also add to India's import bill is its own decline in petcoke production. 

According to PPAC data, India's petcoke production fell 3 per cent in the last financial year. Most analysts attributed this fall in production to Reliance Industries' petcoke gasification project.