Ambuja Cements' acquisition of Orient Cement unlikely to spur demand for petcoke

Ambuja Cements, an arm of Adani Group, announced Oct. 22 that the company will acquire 46.8% stake in the Orient Cement for an equity value of Rupee 8,100 crore ($963.4 million) or share value of Rupee 395.40/share ($4.8/share), the company said in an Oct. 22 regulatory filing. The acquisition is unlikely to affect the demand for seaborne petcoke as overall demand in India remains muted, sources said.

The acquisition, funded by accruals, will increase Ambuja Cements current cement capacity by 8.5 million metric tons/year in the core markets of south and west India to 97.4 million mt/per year and help in achieving the company's target of 100 million mt/per year cement operational capacity by the end of the current financial year 2024-25 (April-March), the filing said.

"There will not be a material impact of the deal on the demand for petcoke," an India-based petcoke buyer said. "There is no leverage following the merger which can lead to a huge coal consumption. Even in the best-case scenario, Orient may be able to reach 7 million tons but even that will not be enough to impact the demand," the buyer added.

India's seaborne petcoke demand has weakened in recent months as most buyers had restocked heavily prior to the monsoon season leading to an elevated inventory amid a slower-than-expected pace of construction activity, market participants said.

Indian cement manufacturers were hoping that construction activities would pick up pace in the October-December quarter but so far it has been sluggish leading to a continued fall in India-delivered petcoke prices, market participants said.

Platts-assessed CFR India 6.5% sulfur US origin petcoke prices have fallen to a near four-year low after falling below $100/mt towards the end of September, indicating the weakness in demand from end-users, S&P Global data showed.

CFR India 6.5% sulfur US petcoke was as high as $110/mt at the beginning of August before it went into a slide and since then it has fallen $17/mt to $93/mt when it was last assessed Oct. 16. The previous low was assessed at $92/mt Dec. 2, 2020.

India’s total petcoke imports stood at 4.8 million mt in the first five months of 2024-25, up from 4.3 million mt a year earlier, according to data from India’s Petroleum Planning and Analysis Cell. However, the pace of year-on-year increase in the current fiscal has come down sharply compared with the growth in imports witnessed during the first five months of the previous financial year. In 2024-24, petcoke imports have increased by 11.6%, sharply lower than the year-on-year increase of 26.5% witnessed in the first five months of fiscal 2023-24.

Consolidation of Indian cement sector

Indian cement industry has been undergoing a phase of consolidation through mergers and acquisitions as the big players in the market look to capture a higher market presence by acquiring stakes in smaller regional players in the country's cement sector, market participants said.

The current move from Ambuja Cements is part of the expansion undertaken by Adani Group since its acquisition of ACC Cement followed by a significant stake purchase in another major producer Ambuja Cements.

Adani Group has also gone on to acquire stakes in regional cement producers such as Asian Concrete and Cements Pvt. Ltd., Sanghi Industries Ltd., Penna Cement Industries Ltd. and also grinding unit of My Home Group Pvt. Ltd.

"There has been consolidation in the cement market for some time as we have heard of bigger players acquiring smaller players allowing the bigger players to penetrate into smaller areas with their dealer network, while smaller players get the know-how and efficiency of the larger players," an India-based petcoke producer said.

Similarly, bigger players such as Dalmia Bharat and Ultratech Cement have also been involved in the acquisition of smaller and regional players in the cement sector with deals for Jaiprakash Associates, Kesoram Industries and India Cement.

Market participants expect that the current phase of consolidation may not directly lead to an increase in demand for petcoke but considering that bigger players offer better logistical and operational capacity, that may indeed lead to increased cement sales and in turn consumption of petcoke.

Moreover, the share of private investment in infrastructure also needs to increase in order for petcoke demand to grow in the coming years as generally government-funded projects take more time to go through checks and balances before being implemented.