Lower prices of petroleum coke and thermal coal, the two key fuels used in producing cement, have helped raise margins at Indian producers over October-December 2023 compared to the same period a year earlier.
India's largest cement maker Ultratech's blended coke and coal fuel costs for October-December eased to $150/t, down by 25pc from a year earlier and lower by about 7pc from the previous quarter. The blended fuel cost was at a historical high of $200/t during July-September and October-December 2022, after coke and coal prices hit record highs in early 2022 following the outbreak of the Russia-Ukraine conflict.
The Argus-assessed delivered India price of 6.5pc sulphur coke had hit a record high of $270/t in March 2022 following the start of the conflict, but this eased sharply over 2023, following a correction in fob rates and weaker demand in some key markets. The price averaged at $131.04/t over October-December 2023, down by about 29pc from a year earlier.
Ultratech used 44pc of coke in its kiln fuel mix during October-December, up from 39pc in the previous quarter, partly replacing thermal coal as coke remained competitive. Imported thermal coal accounted for 46pc of the company's fuel mix in the latest quarter, down from 51pc in July-September.
Coal prices across key origins also eased over 2023. Fuel typically accounts for about a third of production costs for cement. Lower fuel costs and higher cement sales helped Ultratech raise its profit by 68pc from a year earlier to a record 17.77bn rupees ($214mn) in October-December.
The latest quarter is in sharp contrast to 2022, when high fuel costs pressured margins at cement producers, pushing some into losses as they struggled to pass on the high costs to cement buyers.
Fuel costs have now largely stabilised, says leading cement maker Dalmia Bharat, adding that it expects a further reduction of around 3pc in fuel costs over January-March. The Argus-assessed index for the delivered India price of 6.5pc sulphur coke was at $116.20/t in January, down by $6.47/t from December.
Coal as an option
Cement maker Shree Cement could adjust its fuel mix to use more coal if South African coal becomes cheaper than coke, the firm said, as delivered coke prices have risen in recent days. The increase has brought coke to 89pc of the cost of cfr India 5,500kcal/kg coal on a heat-adjusted basis, compared with 83pc on 3 January. Shree's profit increased significantly to Rs7.34bn over October-December compared with Rs2.77bn in the same period a year earlier.
Coal prices are softening this quarter, said Adani group firms Ambuja Cement and ACC recently. The group's cement business saw its power and fuel costs ease by 21pc on the year to Rs1,353/t in October-December. The opportunity to buy low-cost coke will help to further optimise fuel costs in the coming quarters and will augur well in the company's cost optimisation journey, Adani said.
Cement makers have also received higher supplies of cheaper domestic coal in recent months following an increase in output. This has also enhanced savings on fuel costs. The cement industry received 6.94mn t of domestic coal from producers over April-December, the first three quarters of the 2023-24 fiscal year, up by 10pc from the same period a year earlier as coal producers raised output to meet higher demand from utilities and industrial consumers. Higher supplies help cement plants increase the share of coal in their fuel mix.
Stable fuel to help expansion plans
Stable fuel prices are expected to encourage cement makers to move ahead aggressively with their capacity expansion plans, leading to a higher consumption of coke and coal. Rising coke and coal prices over 2022 had forced companies to allocate greater working capital towards fuel inventories, which implied high carrying costs.
Shree Cement has recently brought a 3.5mn t/yr cement plant on line in Nawalgarh in north India's Rajasthan state, and plans to commission another 3mn t/yr plant in Guntur, Andhra Pradesh, by the end of this quarter. Ultratech started up a 2.6mn t/yr cement unit in north India's Punjab state in January.
India is the world's second-largest cement market after China. Producers see significant potential for growth in India's cement sector, with the country's consumption at 240-250kg per capita compared with a global average of 500-550kg, according to industry estimates. Rapid urbanisation, a growing middle class and affordable housing, together with construction and other infrastructure sectors, are expected to drive growth in the cement sector.
