When it comes to fuel mix, the choice that cement companies have to make is between domestic coal, international coal and imported petroleum coke (pet coke). Prices of both imported pet coke and coal have remained at elevated levels, but that of the domestic commodity are lower. But despite the steep price gap between imported coal and locally available fuel, cement companies have been relying more on the former, which has a bearing on their operating cost per tonne. A slew of problems relating to domestic coal deter cement firms from opting for it. Coal India Ltd is the sole supplier of the fuel to various industries including cement in the country, but the fact that the miner has been missing production targets simply means that there is not enough coal available to meet the requirement of cement makers, which makes sourcing difficult, especially during the peak season of October-March. The second factor is quality. The gross calorific value (GCV) of imported coal is much higher than that of the locally available fuel. There is also a geographic factor that comes into play here. For south-based cement companies, their clinker units are located close to ports; hence, they prefer importing coal, though there may be an additional landed cost, but sourcing domestically means higher transportation cost, which would impact their operating cost/tonne. However, one key drawback of pet coke is that it is a highly polluting fuel and as of now, there is limited clarity on whether there will be any restrictions on its usage by the government. Though cement companies have been following emission norms and have also incurred capital expenditure on a robust combustion process to minimize the adverse effect of pet coke on the environment, this headwind remains.

(Live Mint)