North cement plants switch to Afghan coal

KARACHI: Cement factories in North have mostly switched to utilising a mix of Afghan and coal sourced from other countries as record high world markets are making imports too expensive for the sector to maintain their profitability.

Northern players are currently using 70 percent Afghan coal and are considering adding 20 percent more local rocky fuel to the mix.

“Afghan coal gave a sufficient buffer to cement companies that gave them room to keep their margins sustained in short to medium term,” said Deepa Jaswani, an analyst at Darson Securities.

She said Russia-Ukraine war had created huge volatility in commodity market, hence global coal prices rallied amid intensified and tight supplies in strategic European countries, instigating European buyers to look for alternative regions like USA, Asia, Colombia, and South Africa.

Another factor is rise in alternative fuels like crude oil and natural gas, Jaswani pointed out.

Coal prices touched $240/tonne in the mid of October 2021 due to gas shortages in Europe after which they started easing off and averaged at $147/tonne till February 22, 2022, but this was a momentary scenario, she said.

As tensions started between Russia-Ukraine from February 24, 2022 prices started to pick up and shot up to highest level after sanctions and tight-supply-led hike in gas prices caused European economies to switch to coal-fired power generation, she said.

In Asia and Australia supply was already tightened due to Indonesia’s ban on coal export and heavy rainfall in Australia distorted supply chain.

Currently, price of benchmark Richard Bay coal prices climbed to lifetime high of $460/tonne thus raising long-term risks of financial hardships for cement industry.

If this situation prolongs and more direct and indirect sanctions are imposed, coal may come early at the end of this month, which will put more pressure on supplies and on prices and as a consequence it is expected to shoot up towards $480-$500/tonne in the near term.

According to Jaswani, previously Afghan coal used to trade at 25-30 percent lower than benchmark Richard Bay, but currently this discount differential jumped significantly in prices as Afghan as well as local coal is currently trading at $200-$170/tonne approximately. As per industry experts, majority of the northern players have landed cost of closing inventory at Rs27,000-31,000/tonne for approximately 70 days of inventory being held, except for MLCF, having 4-5 months of coal inventory in hand.