CEMENT INDUSTRYCEMENT INDUSTRY

Prof.Prof. KRISHNA RAMKRISHNA RAM

Cement IndustryCement Industry

World Cement ProductionWorld Cement Production

• World cement production is about 2.27 World cement production is about 2.27 billion metric tonesbillion metric tones

(Source: (Source: www.researchinchina.com))

• China (40%+ of world production)China (40%+ of world production)

• IndiaIndia

• USAUSA

Evolution of Cement Industry:

Pre and post liberalization

• Originated in India in 1914 in Probandar, Gujarat.

• The industry was partially decontrolled in 1982. So,

gave impetus to its pace of growth.

• Installed capacity more than doubled during the

period 1980-90.

• Has been growing rapidly at an average rate of 8

per cent except for a short period in 1991-92

• Current Situation of the Industry and Rate of growth

Global Bigwigs in CementGlobal Bigwigs in Cement

• La Farge, FranceLa Farge, France

• Holcim, SwitzerlandHolcim, Switzerland

• Cemex, MexicoCemex, Mexico

• Italcementi, ItalyItalcementi, Italy

• Heidelberg Cement, GermanyHeidelberg Cement, Germany

Distribution of World Cement Production

A Primer on the Indian A Primer on the Indian Cement IndustryCement Industry

• Highly fragmented (low entry Highly fragmented (low entry barriers)barriers)

• Cyclical industry Cyclical industry • Highly capital & energy intensiveHighly capital & energy intensive• Heavily taxed sectorHeavily taxed sector• High bulk (volume) low value productHigh bulk (volume) low value product• Heavy dependence on 3 sectors viz. Heavy dependence on 3 sectors viz.

coal, power and transportcoal, power and transport

Current SituationCurrent Situation

• Growth Rate of 11.16% Growth Rate of 11.16%

• Industry Capacity - 157 million tons Industry Capacity - 157 million tons

• Per capita Consumption of Cement in Per capita Consumption of Cement in India-110 kg against World Average - India-110 kg against World Average - 250 kg250 kg

• Cement Industry is segmented in Cement Industry is segmented in regions- North, West, East, South, etc.regions- North, West, East, South, etc.

SWOT ANALYSISSWOT ANALYSIS

• StrengthsStrengths

•Increase in demandIncrease in demand•Capacity utilization over Capacity utilization over 90%90%

• WeaknessesWeaknesses

• Cement Industry is Cement Industry is highly fragmentedhighly fragmented

• Industry is also Industry is also highly regionalizedhighly regionalized

• OpportunitiesOpportunities

•Demand–supply gap Demand–supply gap bcoz Lower per capita bcoz Lower per capita consumption as consumption as compared to developing compared to developing countries (=1/3 rd of countries (=1/3 rd of

world average) world average) 

• ThreatsThreats

• Government Government intervention to intervention to adjust cement pricesadjust cement prices

• Transportation cost Transportation cost is scaling high; is scaling high; bottleneck due to bottleneck due to

loading restrictionsloading restrictions

• Ordinary Portland cement (OPC)

• White Cement

• Portland Blast Furnace Slag Cement (PBFSC)

• Specialized Cement

• Water Proof Cement

Segments and Grades of Cement

Segments and Grades of Cement

Major Players of Cement Major Players of Cement Industry in IndiaIndustry in India

The Associated Cement Companies Limited (ACC)

UltraTech CemCo Ltd.

Gujarat Ambuja Cements Limited

Grasim Industries Limited

Century Textiles and Industries Limited

Birla Corp Limited

The India Cements Limited

Jaiprakash Industries Limited

Lafarge

Indian Cement Industry – Major Indian Cement Industry – Major Players in 2006Players in 2006

12.69.7

10.6

10.34.73.65.94.5

3.2

34.8

ACC

Ultratech

Gujarat Ambuja

Grasim Industries

Century Textiles andIndustries

Birla Corp Ltd

India Cements

Jaiprakash Industries(Jaypee)

Lafarge

Others

Mergers & AcquisitionsMergers & AcquisitionsFlurry of consolidation in the last 3 years. Notable Flurry of consolidation in the last 3 years. Notable

ones include:ones include:• Gujarat Ambuja picking up 14% in ACCGujarat Ambuja picking up 14% in ACC• Grasim acquiring cement business of Grasim acquiring cement business of • L&T forming UltraTechL&T forming UltraTech• ABG has 17 plants, 8-Grasim and 9-Ultratech ABG has 17 plants, 8-Grasim and 9-Ultratech • Holcim taking minority stake in GACL and 67% Holcim taking minority stake in GACL and 67%

stake in ACCstake in ACC• Heidelberg Cement acquiring 50% in Indorama Heidelberg Cement acquiring 50% in Indorama

CementCement

Contribution to Economy Contribution to Economy

• The cement industry accounts for The cement industry accounts for approximately 1.3% of GDP and approximately 1.3% of GDP and employs over 0.14 million peopleemploys over 0.14 million people

• It is a significant contributor to the It is a significant contributor to the revenue collected by both the central revenue collected by both the central and state governments through and state governments through excise and sales taxesexcise and sales taxes

Declining Role of Public Declining Role of Public SectorSector

• One of the most important areas of One of the most important areas of operations for the Indian private sectoroperations for the Indian private sector

• Among cement public sector Among cement public sector undertakings (PSUs), Cement undertakings (PSUs), Cement Corporation of India (CCI), a central Corporation of India (CCI), a central PSU, is the leading player PSU, is the leading player

• Private sector (large companies) Private sector (large companies) accounts for around 95% of the total accounts for around 95% of the total installed capacityinstalled capacity

Demand and SupplyDemand and Supply

• Surplus has declined from 0.42 mt in Surplus has declined from 0.42 mt in 2005 to 0.23 mt in 20062005 to 0.23 mt in 2006

• Capacity utilization – 84% in 2005 to Capacity utilization – 84% in 2005 to 90% in 200690% in 2006

• India per capita Cement Production 0.13 India per capita Cement Production 0.13 tones in 2006 whereas globally 0.3 tones in 2006 whereas globally 0.3 tonestones

Government RegulationsGovernment Regulations

Price and Distribution Controls (1940-1981)

Partial Decontrol (1982-1988)

Total Decontrol (1989)

Factors (under Govt.) Influencing Prices of the Cement: Coal Electricity Infrastructure Lime stone Transport

Cement ExportsCement Exports

• 6 MT exports in 20066 MT exports in 2006

• CCement exports were higher by ement exports were higher by 47.7%47.7%

• Expected Expected CAGR of 10-12 per cent CAGR of 10-12 per cent over the next 4-5 yearsover the next 4-5 years

FDI/FII

• 100% FDI permitted

• Foreign players entry by Mergers and Acquisitions

Cost structureCost structure

• The 2 major costs in cement industry The 2 major costs in cement industry are are

(i) Energy costs (i) Energy costs (ii) Freight costs(ii) Freight costs• Over the years, the share of energy Over the years, the share of energy

costs have gone up marginally while costs have gone up marginally while that of freight costs has declined that of freight costs has declined

• Other costs more or less stableOther costs more or less stable

Energy Management & Energy Management & Technology UpgradationTechnology Upgradation

• The energy consumption by the cement industry is almost 5% of the total global industrial energy consumption

• Energy conservation measures are cost effective and backed by the energy efficiency bill passed by the parliament recently

• Using PI software of OSIsoft all the 17 Plants of Aditya Birla Group (investment of Rs. 5 crore) all over India are integrated from Shop Level to Top Level

Use of Alternate Fuels & GRP Use of Alternate Fuels & GRP RatingRating

• Energy costs account for nearly 30-40% of the Energy costs account for nearly 30-40% of the total costs of cement production. total costs of cement production.

• Thus, the use of wastes as alternative fuels (like Thus, the use of wastes as alternative fuels (like tire derived fuels (TDF)tire derived fuels (TDF) )in cement plants is )in cement plants is technically, ecologically and economically technically, ecologically and economically justified.justified.

• Green Rating Project (GRP) which Green Rating Project (GRP) which looks at the looks at the environmental health of the sector, environmental health of the sector, has now rated has now rated the cement sector.  the cement sector. 

Impact of Budget (2007-Impact of Budget (2007-2008)2008)

• Exercise duty based on Price

• Increased allocation for Infrastructure projects

• Railway budget: decrease in the freight rates for Diesel, Limestone, Petrol

• Removal of tax exemptions for the contractors

Path Ahead!Path Ahead!• GDP growth expected to fuel the boomGDP growth expected to fuel the boom

• Increased spending on roads and housing expectedIncreased spending on roads and housing expected

• ““Bharat Nirman” and concomitant rural development Bharat Nirman” and concomitant rural development

also can push up the figuresalso can push up the figures

• On the whole infrastructure spending expected to On the whole infrastructure spending expected to

drive growth in cement and construction activitiesdrive growth in cement and construction activities

• Growth at 9% per annum from 2007-2010Growth at 9% per annum from 2007-2010

• Production expected to increase to 196 mt by 2010Production expected to increase to 196 mt by 2010

• Consumption expected to increase to 190 mt by 2010Consumption expected to increase to 190 mt by 2010

Global outlook for cement & Global outlook for cement & construction industryconstruction industry

• Annual cement demand to grow 4.7%Annual cement demand to grow 4.7%

• Construction boom in China (Olympics) Construction boom in China (Olympics) & India (housing, infrastructure) to & India (housing, infrastructure) to drive projects till 2010 drive projects till 2010

• Half the world’s concrete production Half the world’s concrete production and a third of the steel production goes and a third of the steel production goes into China for her construction projectsinto China for her construction projects

References:References:

• Prowess DatabaseProwess Database• www.edelcap.com• www.pinsentmasons.com• www.icra.in• www.hinduonnet.com• Survey of Indian industry, 2006 Survey of Indian industry, 2006

published by “The Hindu”published by “The Hindu”

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