A nationwide ban on petcoke use in India will reduce demand for Supramax vessels in 2018, though the resultant increase in coal imports will soften the impact, reports Drewry ShippingA blanket ban on pet coke in the making India’s Apex Court is set to approve a blanket ban on the use of petcoke in the country in 2018. Earlier in October 2017, the Supreme Court temporarily prohibited the use of petcoke in some northern states.A ban on the use of petcoke will substantially dent demand for Supramaxes, given that India’s petcoke imports rose rapidly between 2011 and 2016, to reach 14.4 million tonnes. But in 2017 they fell to 12.7 million tonnes and given that India is the world’s largest importer of petcoke (approximately 28% of global seaborne movements) the effect of the ban on overall petcoke trade will be significant.At a specific level India’s petcoke trade has been a key driver for long-haul demand for Supramax vessels. For example, India imported 60% of its petcoke requirement in 2016 from the US, but only 28% from short haul Saudi Arabia. Hence, the impact of declining petcoke shipments will be more evident in terms of tonne-mile demand, than the volume decline in global pet coke trade.
India's petcoke imports (million tonnes)
India's petcoke imports, 2017 (no. of shipments by vessel size)
High coal imports – a silver lining
With the petcoke ban in place, we expect industrial companies to substitute petcoke with thermal coal. In the last few years, cement manufacturers switched from thermal coal to petcoke, as latter is cheaper. Hence, the restriction on petcoke use is likely to compel manufacturers to switch back to coal.
In order to replace petcoke imports, India’s coal consumption will increase by approximately 22 million tonnes in 2018. The shortage of high quality coal in India and the continued failure of domestic production to reach production targets will require companies to fulfil most of the additional requirement by imports. To an extent this will soften the impact of the ban on petcoke imports on dry bulk shipping demand.
India is likely to source most of its coal imports from Indonesia, followed by South Africa. It takes only 6 days and 13 days to sail one way from Indonesia and South Africa respectively to India, while it takes more than 35 days to sail between the US and India.
Hence, if India imports coal from Indonesia and South Africa in 2018 in the same proportion as it did in 2016, we estimate that additional coal imports of 22 million tonnes will require 25 Supramax vessels. However, in 2017 India’s petcoke imports generated demand for approximately 50 Supramax vessels.
In nutshell, in spite of the increase in coal imports, we estimate that the net effect of the ban on petcoke imports will be to reduce Indian demand for Supramaxes by 50%, or 25 vessels in 2018 because of lower tonne-mile demand.
Impact of substitution of petcoke imports by coal