IMO 2020 rules – likely to be blessings for cement industry in Pakistan

Pakistan's cement industry is likely benefit from competitive furnace oil instead of the more costly re-gasified liquefied natural gs (RLNG) for power generation, if it is allowed in the backdrop of IMO 2020 rules, which discourages use of high-sulphur fuel oil in shipping industry.
 
According to a report of local research house, furnace oil (FO) prices is experiencing downward trend due to IMO 2020 – that has come into effect recently – and that requires tougher regulations on sulphur emission. Analysts believe, IMO 2020 will ultimately change the dynamics of oil and shipping industries for the decades to come. From January 2020 the United Nations has banned shipping agencies from using fuels with sulphur content above 0.5 per cent as compared to 3.5 per cent earlier. Resultantly, global demand for HSFO is expected to drop to about 1.55mbpd as against previous year, wherein it stood at 2.86mbpd. This is bound to lead to a further drop in RFO prices – the environmentally challenging fuel.
 
As a result, the 'disconnect' between FO prices and international oil prices stemming principally from implementation of IMO 2020 and hence foresee increased usage of 'cost competitive' FO as a primary fuel for cement manufacturers with their own power generation plants. It is worth mentioning that post adoption of IMO 2020, electricity generation from FO is more competitive than RLNG.
 
Therefore, it is anticipated that Punjab-based cement manufacturers opting for increased power generation employing FO as a primary fuel as against current RLNG subject to regulator's approval. This is bound to augur favourably for gross margins of such cement manufacturers, including DG Khan Cement, Maple Leaf Cement, Fauji Cement Company and Cherat Cement.