Petroleum coke import duty hike may hit cement companies' operating profits

Cement companies operating profits may fall by one per cent following the government's decision to hike import duty on pet coke to 10 per cent from the current 2.5 per cent, a report said.

"The operating margins of cement companies, which use a high proportion of pet coke are likely to be affected following the government's decision to increase the import duty on pet coke to 10 per cent from the present 2.5 per cent. The operating margins of cement manufacturers may fall by about 1 per cent, if increased cost is not passed on to end users," India Ratings said in its report here.

The increase in import duty was announced after the Supreme Court decided to lift the ban on the use of pet coke last week. The Supreme Court allowed the cement industry to use petcoke as a feedstock which had been banned last month to clean up the air pollution. While issuing the exemption order for cement units, the apex court asked the government to frame guidelines for the use of petcoke.

Ind-Ra said that the cement manufacturers may resort to coal imports due to low domestic availability. Cement manufacturers prefer using pet coke, as it contains high calorific value (7,500-8,500Kcal/kg), to non-coking coal (2,200-7,000Kcal/kg).

The rise in the import duty on pet coke will result in a rise in power and fuel cost per metric tonne to Rs 5-7 per bag, the report noted.

Total pet coke consumption in India increased by 34 per cent in October 2017 to 2 million metric tonnes as compared with the level recorded for October 2015. Of the total pet coke consumed in the country during FY17-1HFY18, about 50 per cent was sourced domestically and the remaining through imports.

According to Ind-Ra's assessment, 35 per cent of the total pet coke imports were consumed by the cement industry.