Indian cement's fuel strategy alters

While the Ukraine-Russian war rages on, the impact on fuel prices can clearly be seen across the globe. Indian cement manufacturers are having to reconsider their strategies for energy consumption and fuel sourcing. Changes in imports have already started to see Indian cement producers seek higher volumes of petcoke imports and cheaper trade routes for thermal coal.

Much of the petcoke that Indian cement manufacturers have imported recently has come from Venezuela for the first time, according to a Reuters report. Petcoke is a cheaper alternative to the soaring coal prices, while natural gas from eastern Europe has been disrupted by the ongoing war. While the USA and Saudi Arabia are the main petcoke producers, Venezuela's petcoke is not sanctioned by the USA and India has imported four cargoes of 160,000t of it between April and June. A further 50,000t cargo has been scheduled to arrive in Mangalore this month and a 30,000t consignment at the end of August. 

Shimsupa GmbH, a German scrap trading firm, is supplying Venezuelan petcoke for Ramco Cements, Orient Cement and JSW Cement from the oil terminal of José, Venezuela. Reuters reports that Venezuelan petcoke is being offered at a discount of 5-10 per cent compared to US imports.

A tonne of petcoke is more expensive than coal, but it produces more energy when burnt. If coal prices continue to soar, Venezuelan petcoke could become a long-term feature of the Indian cement sector. While the quality is high, orders have to be placed well ahead of industry needs. "The quality of petcoke is very good and it has very low sulphur," Ramco Cements' Chief Financial Officer, S Vaithiyanathan, said, adding "the downside is that the cargoes take nearly 50 days to arrive in India".

Fuel prices bump up cement prices
In April petcoke and coal prices rose 21 per cent in India, which in turn forced up cement prices by INR20-50/bag (US$0.25-0.63/bag). Meanwhile, natural gas prices in India increased by 110 per cent in April, according to Fitch Ratings. However, cement production also rose by 8-10 per cent in April with cement companies increasing their petcoke consumption and operating at 60-75 per cent capacity utilisation. 

Thermal coal becoming less attractive
India has not been a major buyer of Russian coal but has strong trade links with Australia, Indonesia and South Africa for coal supplies. Coal prices have been volatile since the start of the Ukraine-Russia war and now Europe is expected to increase South African coal orders to replace Russian orders, while Australian volumes are expected to rise in Japan and South Korea. Therefore, it is not so surprising that India's coal imports fell in April to 15.9tMt from 21.79Mt in March, according to Kpler estimates.

Thermal coal imports to India, used in cement plants for firing kilns, slipped to 7.37Mt in April from 9.79Mt in March, according to Kpler estimates. Imports of thermal coal from Australia costing around US$325/t declined to 908,795t in April, compared to a peak of 2.1Mt in November 2021. South African thermal coal imports to India have fallen to 1.16Mt in April from 2.86Mt in March. However, cheaper Indian imports of thermal coal at approximately US$90/t have been ordered from Indonesia.

An alternative fuel future?
Whether these market changes in supply and prices can force more cement producers to look for alternative fuels is currently too early to tell. In India there is often local resistance to cement plants burning plastics, cloth and rubber in their alternative fuel mixes. In April, for example, residents of Ghugus town in Chandrapur complained to the Maharasthan Pollution Control Board about the smell coming from ACC Ltd's Nagpur cement plant, which has been using refuse-derived fuel (RDF).

The Reserve Bank of India (RCI) has recommended the cement industry be incentivised to procure stubble from the northern states of Punjab, Haryana, Uttar Pradesh and Rajasthan for biomass fuel to reduce its carbon emissions and lower its fuel costs. Dalmia Cement is the leading exponent of this fuel policy in the Indian cement sector and aims to have 100 per cent thermal substitution using alternative fuels such as biomass, industrial wastes, municipal solid wastes and hazardous waste by 2035. However, there is a long way to go. Dalmia Cement had a thermal substitution rate of 13 per cent in 2021-22.