One other week and it’s one other commodity story associated to the consequences of coronavirus. This time the Indian press and monetary analysts have began to note a shift within the gas mixture of a number of the main producers from petcoke to coal. UltraTech Cement moved to 30% petcoke and 60% imported coal within the fourth quarter of its 2021 monetary yr that ended on 31 March 2021. This compares to a reported mix of 77% and 10% in the previous year according to Mint. Dalmia Bharat decreased its share of petcoke to 52% within the fourth quarter from 70% within the third quarter, whereas its coal combine was 35 – 40% within the fourth quarter.
Worth is the driving force right here. UltraTech Cement’s chief financial officer Atul Daga summed the situation up in an earnings call in late January 2021. Primarily, he mentioned that gas represented about 13% of whole prices for cement producers in India and that each the price of coal and petcoke practically doubled from June 2020 to January 2021. Nevertheless, coal is seen because the cheaper possibility, therefore the transfer in direction of it within the fuels combine ratio. The petcoke market in the meantime has suffered as a result of decreased oil refinery output as a result of, you guessed it, the impact of coronavirus on world markets in 2020. Shortage within the US market has significantly affected the selections on patrons for Indian cement firms since that is the important thing supply of their imports. Demand for petcoke from Latin America and the Mediterranean hasn’t helped both. Each petcoke and coal markets are anticipated to stabilise within the second half of 2021. Diesel costs have additionally risen not too long ago inflicting UltraTech Cement’s energy and gas prices to extend by 28% year-on-year to US$356m and logistics prices, together with freight bills, to rise by 25% to US$449m within the fourth quarter of its 2021 monetary yr.
With this in thoughts it’s attention-grabbing then, that for some analysts no less than, gas costs have been seen as extra worrying for cement producer income than the most recent spherical of coronavirus-related lockdowns from India’s second wave of an infection. Fitch Ratings for example, warned that the impact of mounting fuel costs would continue to be seen in the quarter to June 2021 but that it would subside due to the switch in fuel mix and price rises passed to end consumers. On the lockdowns, it forecast that localised restrictions, with cement vegetation being allowed to proceed working in most states, would trigger a far much less pronounced drop in cement demand than throughout the first nationwide lockdown.
Graph 1: Month-to-month cement manufacturing in India, January 2019 – April 2021. Supply: Workplace of the Financial Adviser.
Graph 1 above reveals that the disaster the Indian cement sector confronted throughout the first lockdown, when manufacturing crumbled by 85% year-on-year to 4.3Mt in April 2020. The next restoration noticed manufacturing attain its second highest ever determine at 32.9Mt in March 2021. It’s too quickly to inform what’s occurring from the nationwide determine however that dip in April 2021 will not be trying good to this point.
One profit from unstable gas costs is that it builds the financial case for cement producers to boost their different fuels substitution charges. UltraTech Cement, for instance, reported that its ‘inexperienced’ power price grew to 13% in its 2021 monetary yr from 11% in 2020. With a goal of 34% by its 2024 monetary yr, this is a perfect alternative for a change for each UltraTech Cement and different producers.