Rain Industries – An oversold de-leveraging play

I am writing this for myself, as I have not followed RAIN for a few years. As a refresher:
GPC = Green Petroleum Coke ( Raw material for CPC)
CPC = Calcined Petroleum Coke
RPC = Raw petroleum coke
note: GPC is the result of further processing of RPC

• RPC is a solid carbonaceous residue produced during the distillation of crude oil in a refinery. It is a high-sulfur, high-carbon material with various impurities.

• GPC is the result of further processing of RPC. It is produced by heating RPC to high temperatures in a process called thermal cracking or coking. This removes volatile compounds and excess sulfur, resulting in a purer form of carbon. GPC is lighter in color compared to RPC and has a lower sulfur content.

• CPC is produced through a process known as “calcining” GPC, a porous black solid that is a by-product of the crude refining process. This process removes moisture and volatile matter from the GPC at a very high temperature.

If Oil Refineries [OR] process sweet crude, it would lead to the production of anode-grade GPC.But if Oil refineries process less sweet and/or use more sour crude, it would lead to lower production of anode-grade GPC [higher incentives for OR to process sour crude to generate better sales].

GPC is a by-product of the oil-refining process and is not produced to meet the supply or quality needs of CPC or aluminum producers.

Since there was lower anode grade quality GPC available and thus lower quality anode grade CPC, RAIN came up with Isotropic Coke Experiment tech, which led to the blending of grades of CPC (using non-traditional anode coke), which ultimately satisfied the aluminum industry customer.

In July 2018 SC banned the import of Pet coke to reduce pollution by burning it as fuel. RAIN used to import from its US facilities for Calcination and blending (see above).

Subsequently, in October 2018 order – limited the import of GPC by the calcination industry to 1.4 MT and the import of CPC by the aluminum industry to 0.5 MT.

In India, we continue to work with regulatory authorities to gain relief from GPC-import restrictions for our new vertical-shaft calciner in the Andhra Pradesh Special Economic Zone, Visakhapatnam, as it is meant for catering to export markets.

RAIN’s CPC plants are the only calcination facilities in India with continuous operating flue-gas desulphurisation (FGD) systems that remove 98-99% of our plants’ SO2 emissions and waste-heat recovery systems that enable our plants to generate clean electricity.

The Vertical shaft calciner is working only at 45% CU. They cant import CPC from the USA plants.

The Supreme court delegated further action on imports of Pet Coke to CAQM (Commission for Air Quality Management)

With this, coming to the Order from CAQM
(in my opinion, things which are material for our judgement in the broader scheme of things):

1. Since conversion of RPC to CPC leads to emission of SO2 and given that aluminium industry can import CPC required for processing, why cause incremental pollution? Therefore, it’s not encouraged to promote further expansion of industries solely focused on calcining industries, due to their contribution to air pollution.
2. continue with the cap on import of RPC/CPC.
3. although there is an in crease in AL production by 25-26 from 4.249 to 5.09 mm tonne and the corresponding need of CPC would increase from 1.74 MMT to 2.1 MMT
4. Commission may permit to allocate the aforementioned quantities of RPC /CPC for import total:

• • Year 2024-25: 1.9 MMT RPC for calciners and 0.5 MMT CPC for Aluminium Industry
• • Year 2025-26 onwards: 1.9 MMT RPC for calciners and 0.8 MMT CPC for Aluminium Industry.

Specifically for our company:

• Since RAIN has a plant in the Special Economic Zone (SEZ). Even though its in SEZ, it might not be an environmentally desirable proposition. however RAIN’s unit in question abides by all the rules regulatory clearances and permissions.
• Emission standard that has been released in June 2023, will come in to effect by June 2025, but RAIN’s unit is already in compliance with the emission norms even on date.
• in addition they have FGD installed and treats SO2 emissions with 98% efficiency and no Ash generated. Thus they can NOT stop operations and denied any rights in the AP SEZ area.
• import of RPC/CPC by Rain’s SEZ Unit shall be permitted as per their CTO ( given it satisfied those 6 stipulations, which in my opinion, they are already compliant)
• no one new can set up a CPC manufacturing unit or expand capacity – net net a moat for RAIN.

This overall seems very positive for the company.