Fluctuations in prices of various fuels and regulatory pressures are making manufacturers to choose machines that can be adapted to various fuels based on cost and other advantages.
Coal has the special distinction of being at the same time the fuel and a raw material for production of clinker, the cement intermediate. As much as 25 per cent of the manufacturing cost of cement could be coal. Coal is also used as fuel for power plants by the captive power producers in the cement industry.
Petcoke is a key raw material for producing clinker (primary raw material for manufacturing cement). Clinker production accounts for a majority of fuel consumption in cement industry. Petcoke, which is also a feedstock, has a larger overall share and coal as a key fuel for power plants accounts for the remaining fuel consumption. "Both coal and petcoke together account for an average 85-90 per cent of the total fuel requirement of the cement industry," says Ashish K Nainan of CARE Ratings. As such, fluctuation in the prices of these fuels has the potential to affect the cost and profitability of cement companies.
Renewable energy, power from waste and other non-conventional power sources account for almost 10 per cent of the fuel and power requirement of the industry. Coal plays dual role because, in the cement kiln, when pulverised coal is fired through the burners, it provides energy needed for the chemical calcinations reactions, and then the combustion residue of coal with all its silica, iron oxides, and other compounds, add to the cementatious properties of the end-product. To this, if we were to add that most cement plants in India run coal-fired captive power plants for much of their power needs, the role of coal in cement industry gets further enlarged.
The fuel mix depends on the kilns technological acceptability towards a particular fuel source - either a coal based kiln or a multi fuel kiln. Most of the cement manufacturers are taking several factors into consideration in order to take advantage of price fluctuations of various fuels they can use in their kilns. That is where adoption of multi fuel technologies coming in handy.
"Nowadays most of the cement manufacturers have a multi fuel facility, cement manufacturers benefit from having a multi fuel kiln for the simple reason they have a flexibility to switch between different fuel sources depending on the cost (INR/Kcal) dynamics. For example from 1HFY17 to 1HFY18, the delta between pet coke prices and coal prices were as high as 30-40 paise, thus it made sense to use pet coke, however this narrowed out from 1HFY18 to 5-10 paise, and in some cases coal were cheaper source thus making coal more lucrative," says Shochis Natrajan, Analyst (Corporate Ratings), India Ratings and Research (Fitch Group).
Besides, the manufacturers have to take precautions towards ensuring regulatory compliance relating to environmental protection, while adopting a particular fuel.
On environmental consideration, regulatory or judicial interventions could be very disruptive, like petcoke ban implemented in the past which had a major impact on large number of players in the sector. "Fuels like coal and petcoke have this major drawback wherein restrictions especially judicial interventions pose a major challenge for the sector. The industry has to work towards finding alternatives or substitute some of these fuels used for manufacturing as well as improve the overall efficiency in usage and minimize wastage," says Nainan.
"The other key challenge is prices of commodity and currency movements. Cement is more of a commodity and thus, passing on costs, especially in competitive market conditions is quite difficult," Nainan adds citing how prices of crude and coal globally have impacted the margins of the industry in FY19 (2018-19). Additionally, it is the availability of these fuels as in case of domestic coal and their transportation costs or availability of rakes too impacts its users.
The petcoke dilemma
The major environmental concern of the traditional fuels like coal and pet coke is the high carbon emission during the manufacturing process. The sector contributes considerably towards carbon emission among manufacturing industries (approximately 3-4 per cent globally). Since emissions are highly regulated, there are enough measures and safeguards already implemented by cement manufacturers in the industry, but there is always scope to improve by following the highest global standards like in some European nations.
Petcoke is preferred due to its high carbon content, with higher calorific value (over approximately 7,500 Kcal/kg), which makes it a much more economical fuel for the cement manufacturers and they also blend it with coal to improve energy production.
However, the major downside is sulphur content in low quality petcoke (approximately 8-25 per cent), which is highly-polluting and also causes formation of a layer of sulphur, which leads to higher maintenance/downtime of cement plants.
Over the last few years, consumption of pet coke has spiked in India, driven particularly by the cement industry, and also by some of the power generating stations, and imports have sharply increased as well. Many cement factories have been spending considerable amount of time and money to learn how to use more and more pet coke in their kilns without destabilising their chemical processes.
In the wake of its adverse impact on environment, the focus of regulators on high-sulphur petcoke increased, resulting in the state of Delhi and the National Green Tribunal banning use of furnace oil and pet coke in states neighbouring the capital region, a couple of years' back. After hectic lobbying, there was a relaxation for cement kilns, given its capacity to burn pet coke in an environment-friendly manner.
But the relaxation came with a suggestion to nudge the government to discourage pet coke use, including considering a ban on its imports, which were equal to the then domestic production of 12 million tonnes. The import ban has resulted in domestic supplier jacking up prices.
"Considering the coal and pet coke price inflation, renewable and waste heat energy is preferred over traditional thermal captive power plant or grid purchase. Amongst renewable and waste heat, it depends on the waste heat generated by the cement plant if waste heat generation is higher then waste heat recovery system is preferred else renewable," says Natrajan.
The way forward
Coal India reached extremely close to its production target of 610 million tonne (MT) for 2018-19 and posting a 7 per cent growth in production to 606.9 MT of coal. Thus, it posted a three-fold growth in production compared to 2017-18 output growth of 2.4 per cent. The Ministry of Coal has set a production target of 655 MT for Coal India for the current fiscal.
Singareni Collieries Company's (SCCL) production stood at 57.94 MT in the 11 months to February 2019 against the target of 65 MT for 2018-2019. The coal production of captive mines during the 11 months period was 44.41 MT compared to a target of 40 MT for the fiscal, achieving a growth rate of 31.6 per cent year-on-year. Commissioning of three crucial railway tracks - Jharsuguda-Sardega railway line, Tori-Shivpur line in Jharkhand and Connector in Chhattisgarh - the East Corridor and East-West Corridor - this year will increase the CIL'
India's coal imports are still high at 233.56 million tonnes in 2018-19, up nearly 9 per cent, according to a mjunction report. Despite having reserves that are equal to 43 years of current consumption as part of the natural endowments, India still remains import dependent for this crucial fuel, mainly due to slow growth in production in available mines. With coal import trend expected to continue as power, cement and steel industries are expected to create more demand for coal, the government has to evolve strategies to improve energy security by tapping domestic coal reserves. CIL earmarks 10 per cent of its production for e-auction and though e-auction has proved to be a mutually beneficial option for both CIL and the end users initially, e-auction prices rose about 53 per cent in the December quarter of FY19, when the company offered only half the quantity it did a year ago, after diverting supplies to power plants. That kind of ad-hoc paring of supplies have to be avoided as they are expected to hurt the industry in general and cement manufacturers in particular, as they are not part of the priority sector for coal supplies.
- BS SRINIVASALU REDDY