Date | Nov 20, 2017:

Share prices of cement companies fell sharply on Monday, on Friday's order of the Supreme Court reiterating the ban on use of petcoke in Delhi and the rest of the National Capital Region, to control pollution. The SC has clarified that the ban is applicable across Rajasthan, Haryana and Uttar Pradesh, too.

The SC also requested all states to enforce a nationwide ban on petcoke, the primary fuel and input material for cement makers.

The share price of Shree Cement, whose dependence on petcoke is 100 per cent, fell by 4.2 per cent to Rs 17,529. JK Lakshmi Cement fell by 4.6 per cent to Rs 408.4, ACC by 3.4 per cent to Rs 1,706.3 and JK Cement by 5.2 per cent to Rs 1,024.5.

And, there are other headwinds in the form of restriction on sand mining and other states also banning petcoke usage.

According to Edelweiss Securities, the effect of the ban in Rajasthan would be to raise the cost of cement production by six to nine per cent a tonne and this is likely to be passed on to consumers in the near future. Producers are estimated to see fuel cost escalation of 10-40 per cent.

RR Ravi, sector analyst with Centrum Broking, feels the cost escalation would result in prices rising by Rs 10 a bag in wholesale trade. IIFL Institutional Equities says almost all cement plants in Rajasthan use petcoke to the tune of 90-100 per cent; 70-80 per cent of north-based companies have factories in Rajasthan.

The price of petcoke is 10-12 per cent higher than imported coal but as its volume requirement is much lower, it is cost-effective to use it. Petcoke has a Gross Calrific Value of 7,700-8,000 kcal, while imported coal's GCV is 5,000-6,000 kcal; that of India-mined coal is much less.

"Thus, if we switch from petcoke to coal, the volume requirement of this input material would go up by 30-40 per cent," said a sector official.

Senior officials from cement firms are unsure of how things will be in the near future, pan India; they have started arranging for alternative fuel. Shree Cement, whose dependence on petcoke is 100 per cent, is now aggressively bidding to secure supply linkage from state-owned Coal India. Birla Corporation, which recently acquired units of Reliance Cement, has secured its linkage.

While ACC and Ambuja Cements have kept their dependence on petcoke lower, at 65-67 per cent, the exposure of UltraTech, JK Cement and JK Lakshmi Cement is 75-85 per cent.

Nevertheless, over the years, these companies have tailored their plants to either use petcoke or substitute it with coal. Technically, therefore, the switch wouldn't be a problem.

(Source: http://www.business-standard.com/)