THE PERFORMANCE AND POTENTIAL OF THE INDIAN CEMENT MARKET

Holtec Consulting, India Jagdeep Verma

Bangkok 2013

India Past Cement

demand growth of ~8% p.a. Is the trend

likely to continue?

Economic growth: GDP

growth of ~5 % in 2012-13

Expected to be the world's

largest economy by 2050

Infrastructure Constraint

Boon in the

construction Industry? - which is main driver

of Cement Demand

Urban population to double from the

290m in 2001 to ~590m by 2030

PCC India: ~200 kgs World: 485 kgs INDIA

Second largest cement market

Demand: ~253 mio t

Obsolete Construction Techniques

Ad-hoc’ism vs System based

Policies

Overcapacity in short-medium

term

Paucity of limestone??

Current Industry Structure

Demand 253 mio t

Effective Capacity 320 mio tpa*

Number of Plants ~210

Size of Plants 0.2 – 6.0 mio tpa

Number of Integrated Units 140

Number of Downstream Units 70

Number of Players 70-80

(Figures for FY13)

* Effective capacity refers to the actual supplying capability of the plants, installed capacity for FY 13 is estimated to be 368 mio tpa.

315 345 380422 446 446 446

270

377346317291

447411

253

446

-100

200300

400500

FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20

Demand Supply Capability

Future Demand-Supply

After trailing potential supply between FY 13 – FY 19, demand could again exceed supply in FY 20, if fresh capacity expansion is not planned earlier.

*Refers to domestic supply (net of exports), assuming supply for any capacity added as 50% in Yr 1 & 100% from Yr2 onwards and Cap. Util. of 90%.

Supply Capability assumed static at FY 17 level of 446 mio t

PCC 302 282 324 CD 125 115 136

244 214 204 228 262 97 82 77 89 105

Plant Clusters Eff. Capacity = 320 mio tpa Major Clusters = 13 Nos

Figures indicate capacity of the cluster as % of Total India Capacity

Himachal North East

South Tamil Nadu Central Tamil Nadu

Yerraguntla

Gulbarga Nalgonda

Bilaspur Chandrapur

Saurashtra

Sirohi Satna

Kutch

5%

3%

5%

8%

4%

8%

2%

8%

2% 8%

12%

9%

1%

Tot. Cluster based Cap. ~ 240 mio tpa % Capacity based in clusters ~ 75%

FY 13

Very High

Average

Very Low

High

Low

•  Consumption Density (CD) measures demand intensity in a particular geographic region

•  Supply Intensity (SI) measures the propensity of players to supply a market

•  A higher CD implies a higher demand intensity •  Higher the SI of a market, the lower is the preference of a

player to supply that market

CD, SI and Market Attractiveness Consumption

Density Market Attractiveness

Supply Intensity

Grid Consumption Density

V Low Low Average High V High Supply Intensity

V High High

Average Low

V Low

50

60

70

80

90

100

110

FY 0

9 Q

1

FY 0

9 Q

2

FY 0

9 Q

3

FY 0

9 Q

4

FY 10

Q1

FY 10

Q2

FY 10

Q3

FY 10

Q4

FY 11

Q1

FY 11

Q2

FY 11

Q3

FY 11

Q4

FY 12

Q1

FY 12

Q2

FY 12

Q3

FY 12

Q4

FY 13

Q1

50%

60%

70%

80%

90%

100%

110%

Prices Capacity Utilization

Capacity Utilization Vs Price Capacity Utilization dipped to a low of

~65% in mid 2011 but prices remained stable and both improved during 1st Qtr of

2012. Although capacity utilization dropped, prices remain robust.

Prices have remained in the range of USD 70-90 per t (increased at an average ~5% pa over past 5 years)

Average Capacity Utilization has been

~80% over past 5 years

USD/

t

141 154 164

206229 236 244 243

272297

138

452

374

409

383359

335313

100

150

200

250

300

350

400

450

500

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

Past Price Optimistic Pessimistic Most Likely

Simulated Price Forecasts

After Demand – Supply gap, rising input materials’ prices are seen to have the most significant impact on Cement

Price

Future Projections

Prices in past have grown at a CAGR of 5-7% pa.

INR p

er ba

g

CAGR 6-7% under Most Likely

Scenario

USD 90/t 126

140

115

Prices in USD per t

Modeling with 40 variables,

e.g. ü  Cement Spend ü  Demand - Supply Gap ü  Industry

Consolidation ü  Return Expectations of

Investors ü  Past Cement Prices ü  Price Elasticity of

Demand ü  CAPEX for Capacity

Creation ü  Availability of Input

Materials ü  Price Indices ü  Differential Costs of

Delivery

0%20%40%60%80%

100%

FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12

Prod

uct M

ix

OPC PPC PBFS

Changes in Product Mix

FY 13 FY18

PBFS, 7%PPC,

61%

OPC, 32%

PBFS, 8%

OPC, 27%

PPC, 65%

< 10%

< 30%

Technology Status ü  Indian cement industry deploys the best of the technologies

available.

ü  In many cases, India has been in the forefront to adopt latest technologies.

ü  Use of technology is reflected in terms of energy consumption, kiln productivity, operating hours/ year, pollution control levels, etc.

ü  Some of the technological developments are:

•  Developments in Unit Operations: Improvements in the area of mining, crushing, raw material grinding and pyro processing.

•  Developments in other areas of Plant Technology & Operation like Automation, Instrumentation & Plant Control Systems, Material Handling System, Integrated Quality Assurance System, Energy Efficiencies, Use of Alternate Fuels, etc

Equipment Supply Section Equipment Suppliers

Raw Mill

VRM (Vertical Roller Mill) Gebr Pfeiffer, ThyssenKrupp, Loesche, FL Smidth

CCBM (Closed Circuit Ball Mill) Enexco, Humboldt, ThyssenKrupp, Christian Pfeiffer, Promac, FL Smidth, Sinoma

RPBM (Roller Press Ball Mill) FL Smidth, Humboldt, ThyssenKrupp

RP (Roller Press) FL Smidth, Humboldt, ThyssenKrupp

Coal Mill VRM (Vertical Roller Mill) Gebr Pfeiffer, ThyssenKrupp, Loesche, FL Smidth

Cement Mill

VRM (Vertical Roller Mill) Gebr Pfeiffer, ThyssenKrupp, Loesche, FL Smidth

CCBM (Closed Circuit Ball Mill) Enexco, Humboldt, ThyssenKrupp, Christian Pfeiffer, Promac, FL Smidth, Sinoma

RPBM (Roller Press Ball Mill) FL Smidth, Humboldt, ThyssenKrupp

RP (Roller Press) FL Smidth, Humboldt, ThyssenKrupp

Pyro Section Main Machinery FL Smidth, Humboldt , ThyssenKrupp, IKN Engineering, Sinoma

Critical equipments like main gear box, kiln burners, analyzers are imported, rest are made in India

Market Position of Cement Players

Geographic Spread

Pric

ing

Country Majors

60 Nos. 84 mio tpa

Regional Majors

Others

3 Nos. 143 mio tpa

16 Nos. 142 mio tpa

Low

Med

High

1 Region 1 – 2 Regions Pan India

~25% players account for ~80% capacity

Total installed capacity: 369 mio tpa, Total players: ~80 nos. (for FY13)

Limestone Reserves

North Zone East Zone West Zone South Zone Central Zone

Individual Deposit > 50 mio t

CaO > 42% 45 bio t

Total Deposits 50 bio t

Exploitable Reserves 22 bio t

In Forest Land 4 bio t

Statutorily Blocked 19 bio t

-5

101520

2530

3540

FY11 FY16 FY21 FY26 FY31 FY33 FY35 FY36 FY38 FY41 FY43 FY45 FY47 FY49

Case ICase IICase IIICase IV

Residual Limestone Reserves

Case - I : Current product mix with current limestone reserve

Case - II : Current product mix with increased exploitable limestone

Case - III : Case II with 100% blended cement beyond 2017 Case - IV : Case III with lower demand growth

Bn t

Power & Water Waste heat

recovery for power

generation

Greater use of wind/ tidal/ solar power

Mega thermal plants as IPP/

captive use

Contracting alliances with IPPs

Plants using captive power

Approximately 3,000 MW of CPP Capacity would need to be created

75% 50% 0%

20% 40% 60% 80%

FY 13 FY 18

5,900 MW

8,000MW

Legend Over Exploited Blocks Critical Blocks Safe Blocks

Water Power

Fuels and Additives ü  Coal rich states are Madhya Pradesh, Chhattisgarh, Jharkhand, Orissa, North

East, Maharashtra, Andhra Pradesh. ü  Indian Cement industry uses > 25% imported coal. Usage of imported coal

expected to increase, especially in coastal regions. ü  Alternate fuels expected to receive enhanced attention in future. Present

Alternative Fuel usage in India is 2,00,000 tpa i.e. thermal substitution of approx 1%.

ü  Alternative Fuels used in India are Biomass, Hazardous Waste, Residue Derived Fuel (RDF), Used Tyres and Industrial Plastic Waste.

FUELS

ADDITIVES ü  Total installed capacity of coal based TPS in India is ~ 92,000 MW i.e. ~100 mio tpa of fly ash generation. ~40 mio tpa of fly ash is currently utilized by the cement industry.

ü  An additional 80 mio tpa of fly ash is expected to be available by 2015 against an incremental requirement of approximately 20 mio tpa.

ü  Current slag generation is ~13 mio tpa & ~9 mio tpa is utilized by the cement industry.

ü  An additional 10-12 mio tpa of slag could be available by 2015 as against an incremental requirement of 5 mio tpa.

13.6

3.63.5

10.1

41.3

7.5

2.9

05

1015202530354045

Uni

t Cos

tof

Prou

ctio

n

Pack

ing

Exp

Ove

rhea

d

Wag

es &

Sala

ries

Coa

l

Pow

er

Raw

Mat

eria

l &C

ons

1.5 8.8

2.52.5

7.5

27.4

4.5

0

5

10

15

20

25

30Un

it C

ost

ofPr

ouct

ion

Pack

ing

Exp

Over

head

Wag

es &

Sala

ries

Coal

Pow

er

Raw

Mat

eria

l&

Con

s

Operating Costs

FY13

FY18

Unit operating costs (PPC) to increase by about ~50% over the period

USD /t

USD /t

Coal32%

Power17%

Raw Material

& Cons28%

Overhead9%

Packing Exp9%

Wages & Salaries

5%

Coal33%

Power18%

Raw Material & Cons

24%

Packing Exp9%

Overhead

9%

Wages & Salaries

7%

6,3924,655

2,485

-

2,000

4,000

6,000

8,000

FY 14 FY 15 FY 16

Investment & Returns

New Capacity USD 9.9 bn

M&A USD 2.7 bn De-bottlenecking

USD 0.9 bn Total Investment USD 13.5 bn

USD mio.

Unit Investment Costs could increase by

~10 % over the period

EBIDTA/t (FY 13) All India Typical

Range: USD 11 to 22/ t

Lower EBIDTA/t witnessed due to: •  Lower demand growth than

expected •  Lower Capacity utilization •  Increase in input material

cost •  Increase in fuel & power cost •  Increase in transportation

cost

Some Trends F  ~ 45 new clinker capacities to be between 6 - 10 k tpd/ lines. F  ~ 25 new split units with capacities between 1 - 4 Mio tpa. F  Raw Materials & Fuel characteristics to dictate choice of technology. F  Alternate fuels to receive enhanced attention. F  Coastal locations to be increasingly favoured for split units. F  Bulk cement sales to increase from 15 to 35 mio tpa and road

despatches from around 170 to 200 mio tpa. F  Ready mix consumption to increase from 7 % to 15 % of total concrete. F  Energy consumption to fall to 670 kcal/ kg clinker and 70 kwh/ t of OPC. F  Adoption of global cement nomenclature and standards. F  Stricter statutory interventions in the utilisation of diminishing

resources, environmental control and customer safeguards. F  Significant increase foreseen in carbon trading.

Opportunities ü  Favorable Demand-Supply balance by FY 19/20: Demand is likely to

overtake supply in next 6-7 years. Typically, plant commissioning can take 5-6 years from planning stage; now is the time to plan to take advantage of forthcoming deficit situation.

ü  Limestone paucity: Limestone resources are limited and valuable.

ü  Growing demand: India has immense growth potential. The future of cement market is likely to remain buoyant in medium to long term.

ü  Capacity Utilization: Present industry capacity utilization is at ~70%; this is likely to start improving in coming years.

ü  Price: Prices have held up, despite lower capacity utilisation. This is likely to continue even in the future.

Currently, industry is bottoming out and likely to start improving in next 1 – 2 years.

The Challenges of Tomorrow ü  Dwindling Natural Resources : Limited limestone, fossil fuel and water

resources. The life of cement grade limestone reserves is estimated to be around 40 years more.

ü  Increasing Costs: Energy efficiencies, equipment availability and input material costs have been the major focus areas for cost reduction in the past. However, recently freight (both inwards and outwards) has also become a focus point.

The potential also exists for reducing costs in non-equipment related domains, e.g. material inventories, consumable consumption rates, financial expenses, etc.

ü  Fuel Shortage: Given the acute shortage of domestic coal and high cost of imported coal, alternate fuels could provide 7-10 % of the total thermal fuel requirements by FY16.

ü  Increase in Gestation Period: The gestation period in the future is likely to be in the range of 5-7 years, due to prolonged pre-project activities like Land acquisition and statutory clearances.

Industry players could attempt to bring down actual construction time by employing more steel in civil engineering structures.

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Gurgaon 122001 - India

Telephone : +91 - 124 - 2385095, 4047900 Facsimile : +91 - 124 - 2385114, 2385116

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