Indian cement firms move away from term petcoke deals

Key Indian cement producers have largely stayed out of discussions for 2021 term supplies of US petroleum coke. A sharp increase in coke prices because of lower refinery run rates and supply uncertainty have forced cement companies to shift to coal as a fuel and change their purchasing strategy.

Indian cement companies usually buy part of their coke imports through term contracts. While it is difficult to quantify the exact volume purchased by the industry through term contracts, it could be well over 1.5mn t/yr, according to market estimates.

Discussions to secure cargoes for the next calendar year typically begin at around this time of year.

"Refiners want to sell term cargoes on index, but we now think that one can get better spot rates, especially in a volatile market like this," said an executive with a cement producer. The fob price-based term deals also involve a freight risk. Cement companies are usually unable to get as competitive freight rates as trading firms, he added.

India, the world's second-largest cement producer, is also the biggest market for seaborne coke. But the industry's lack of appetite for term cargoes could prompt trading firms to take more positions. With limited availability, several US cargoes were sold at fob rates in recent weeks to buyers in nearby markets. This trend could continue for a longer period of 2021, market participants said.

A global tightening of coke supplies because of reduced refinery throughput and the resulting price increase prompted cement companies to temporarily replace coke with coal as a fuel. Prices of imported coal on an adjusted heat-value basis from different origins are available to cement producers at a low to mid-$80s/t against coke prices at a mid- to high $90s/t. Argus yesterday assessed the price of 6.5pc sulphur US coke delivered to India at $96/t cfr, up from $85/t on 2 September.

Coke is no longer popular because the Indian cement industry is switching to high-calorific value coal, which is cheaper, said the executive director and chief financial officer at Indian cement producer Ultratech Atul Daga. The company will consider buying coke only if the price softens.

Monthly coke imports to India have been lower compared with a year earlier every month since January. September saw 673,900t of coke imported, 13pc lower than than a year earlier. Cement producers took the majority share, with 464,400t of coke, 21pc lower from a year previously. Most of India's coke imports in September came from the US, at 272,800t, up by almost 10pc on a year earlier.

By Ajay Modi