Cement

CEMENT INDUSTRY PROFILE

Prerna Mehrotra

MBA Sem 3

• The word Cement has come from the Roman word ‘Opus Caementicium’

• Cement is a binder, a substance that sets and hardens independently, and can bind other materials together.

• The most important use of cement is the production of mortar and concrete—the bonding of natural or artificial aggregates to form a strong building material that is durable in the face of normal environmental effects.

• Joseph Aspdin, a British stonemason, invented Portland cement way back in 1824. With this invention, Aspdin laid the foundation of today’s cement industry.

What is CEMENT?

•Production of Concrete

• Construction Purposeo Building (Floors, Beams,

Columns, Roofing)o Transport (Roads, Pathways,

Crossings, Bridge)o Water (Pipes, Drains, Canals)o Agriculture (Irrigation, Housing)

USES OF CEMENT

•Ordinary Portland Cement (OPC)

•Portland Pozzolana Cement (PPC)

•Portland Blast Furnace Slag Cement (PBFS)

•Oil Well Cement

•Rapid Hardening

• Sulphate Resisting Portland Cement

•White Cement etc.

TYPES OF CEMENTThe basic raw materials used in the cement manufacturing process are limestone, sand, shale, clay, and iron ore.

GLOBAL SCENARIO

•Today, it is estimated that there are around 1500 integrated cement production plants in the world.

•It is estimated that world cement consumption is to rise on an average between 3.6% and 4.8% per year in the coming years.

•Most of the growth is coming from Central and Eastern Europe and Asia, growth in mature markets also looks healthy.

•The share of the four largest firms account only for 23% of the overall demand.

•LAFARGE and CEMEX have become very strong global cement players.

EVOLUTION OF INDIAN CEMENT INDUSTRY

•A Kolkata based company started manufacturing cement in 1889.

•In 1914, Indian Cement Company Ltd was established in Porbandar.

•In 1927, Concrete Association of India was set up to create public awareness on the utility of cement.

•In 1956, price and distribution system of cement industry came under government control.

•After the economic reform in 1980’s the government control on cement industry was liberalized.

•A great increase in demand of cement, has resulted India to become 2nd largest cement producer in the world after China.

•Cement is made out of limestone, shale, clay mined out of quarry close to the plant. The raw material is crushed, and then heated at temperature in excess of 1000 degree Celsius in rotating kiln to become clinker. Clinker is then mixed with gypsum and ground to a fine powder to produce final grade of cement.

•The technology is a continuous process and is highly energy intensive.

•At present 93% of cement production in India is based on modern and environment-friendly dry process technology and only 7% of the capacity is based on old wet and semi-dry process technology.

•The cost of Cement is 29% energy; 27% raw materials; 32% labour and 12% depreciation

CEMENT MANUFACTURING PROCESS

Growth Rate

Investments

Exports

FDI and GDP

ECONOMIC STATUS OF THE CEMENT INDUSTRY

•India is the world’s second largest producer of cement with total capacity of 224 million tonnes as on April 2010.

•Indian Cement Industry comprises of 140 large and more than 365 mini cement plants.

•According to ACC cement report, Government’s continued thrust on infrastructure will help the cement to maintain an annual growth of 9-10% in 2010.

•With addition in the cement production, it is expected that cement production in India will reach 300 million tonnes in the coming years.

GROWTH RATE

•Cement and gypsum products have received cumulative FDI of US$ 1708.69 million between April 2000 and March 2010, according to the Department of Industrial Policy and Promotion.

•Madras Cements Ltd is planning to invest US$ 178.4 million to increase the manufacturing capacity of its Ariyalur plant in Tamil Nadu to 4.5 MT from 2 MT by April 2011. •Shree Cement, plans to invest US$ 97.13 million this year to set up a 1.5 MT clinker and grinding unit in Rajasthan. Moreover, in June 2010, Shree Cement signed an MoU with the Karnataka government to invest US$ 423.6 million for setting up a cement unit and a power plant.

•Jaypee Associates plans to invest US$ 640 million to increase its cement capacity.

•Swiss cement company Holcim plans to invest US$ 1 billion in setting up 2-3 greenfield manufacturing plants in the country in the next five years to serve the rising domestic demand.

INVESTMENTS

•During 2007-08, the export of cement from India touched the 2.16 million tonnes mark. However during 2008-09, the cement export from India stood at 1.46 million tonnes. 

•In spite of seeing fall during 2008-09, the export segment of the industry is expected to grow again on account of various infrastructure projects that are being taken up all over the world. India has an immense potential to tap markets of Middle East and South East Asia

•The negative ACGR (Annual Compound Exponential Growth Rate) of -5.52% in control period has seen ACGR of 35.35% in decontrolled and opened up economy

EXPORTS

•The industry occupies an important place in the national economy because of its strong linkages to other sectors such as construction, transportation , coal and power.

•The cement industry is one of the major contributors to the exchequer by way of indirect taxes.

•100% FDI is permitted in the cement industry.

•It contributes approximately 1.3% of GDP and the industry is employing over 0.14 million people

FDI AND CONTRIBUTION TO THE GDP

MAJOR PLAYERS IN THE INDIAN CEMENT INDUSTRY

Company Production* Installed Capacity*

ACC 17,902 18,640

Ambuja 15,094 14,860

Ultratech 13,707 17,000

Grasim 14,649 14,115

India Cements 8,434 8,810

JK Group 6,174 6,680

Jaypee Group 6,316 6,531

Century 6,636 6,300

Madras Cements 4,550 5,470

Birla Corp. 5,150 5,113

*in Million Tonnes

(Source:Mapsofindia.com 2010, Tradechakra 2008)

• ACC Limited• 14 cement plants• 19 RMC plants• 19 Sales offices

• Gujarat Ambuja Cements Ltd• plants in 7 states

• India Cements• 7 cement plants in AP and TN

• JK Cement Ltd• 2nd largest White Cement

manufacturer in India• Holds 18% market share in

Haryana• 3 production plants in

Rajasthan and Gujarat• Jaypee Group

• Plants located in MP and UP

• Ultratech• A part of Aditya Birla

Group• 73 RMC plants• 11 composite plants• 1 white cement plant• 12 grinding units• 5 terminals

• Grasim• A part of Aditya Birla

Group• 7 split grinding units• 11 composite plants• 4 Bulk terminals• 10 RMC units

• Madras Cements• One of the oldest

cement companies in southern region

• 3 production plants in TN, AP and Karnataka

• Has put up new RMC plants

• Birla Corporation• 2 production plants in

MP and Rajasthan• 2 Grinding units

• Century Cement• 4 production plants

•High Transportation Cost is affecting the competitiveness of the cement industry. Freight accounts for 17% of the production cost. Road is the preferred mode for transportation for distances less than 250km. However, industry is heavily dependant on roads for longer distances too as the railway infrastructure is not adequate.

•Cement industry is highly capital intensive industry and nearly 55-60% of the inputs are controlled by the government.

•There is regional imbalance in the distribution of cement industry. Limestone availability in pockets has led to uneven capacity additions.

•Coal availability and quality is also affecting the production

ISSUES CONCERNING THE CEMENT INDUSTRY

S.No New

Entrant

Country Purchased

1 Holicim Ltd Switzerla

nd

14.8% of Ambuja

Cement

2 Lafarge

Cement

France o Raymond Cement

o TISCO (TATA

Cement)

3 Italcementi Italy Zuari Industries

4 Heidelberg Germany o Indo-Rama Cement

o Diamond Cement

S.No Future Companies Current Business

1 Reliance ADAG o Infrastructure

o Power etc.

2 Jindal Steels o Steel

3 Murli Agro o Agro Products

ACQUISITIONS BY FOREIGN CEMENT GIANTS IN INDIA SINCE

1999

COMPANIES PLANNING TO ENTER THE INDUSTRY

INDIAN CEMENT INDUSTRY LIFE CYCLE

•The Indian cement industry has witnessed a phenomenal capacity addition to the tune of about 52 million tonnes in the last two financial years which accounted for about 24% of the industry’s capacity of 218 million tonnes at the end of FY09

•With as many as four new foreign players having entered the Indian cement market and two-three expected to come in the near future, the competition is expected to get tougher

STRUCTURAL DRIVERS OF THE INDUSTRYGOVERNMENT: From the era of direct government control over

cement production and distribution to today’s globalization of Indian cement industry, Government of India has always been one of its major drivers of change. Tax concession, Tax rebate, etc. to new foreign players have changed the entire cement business in India. With multinational cement players coming in, the cement quality and standards have improved a lot.

REAL ESTATE: The boom in the cement industry in India came in 2003, when the real estate rates started rising. Over the past few years (FY03-07), cement demand has grown at a CAGR of 8.37% which is higher than the CAGR of supply at 4.84%. Real estate sector is the key driver and accounted for almost 55% of cement demand in FY 07.

INFRASTRUCTURE: In this FY10 budget, the Government will be spending Rs. 1.73 trillions on infrastructure. With many international events like Commonwealth games 2010, Hockey World Cup 2010, Cricket World Cup 2011 etc, the need to develop world class infrastructure was felt in early 2000’s. As a result, many new multi billion dollars project were sanctioned to develop roads, metros, airports, railway stations etc all across the country, thus, boosting the demand for cement.

•Coal rates, power tariffs, railway freight plays a very important factor in the price determination, interestingly, government control all of these prices•Govt is one of the biggest consumers of the cement

POLITICAL

•Future of cement industry is very strong•A lot government infrastructure and housing projects are under construction

ECONOMIC

•Indian consumers prefer buying branded cement like LAFARGE, JAYPEE,BIRLA etc•Industry will create 25 lakhs jobs in coming yearsSOCIAL

•Govt is acquiring new technology from Japan •Emphasis is on creating highly energy efficient and environment friendly technology to produce cement

TECHNOLOGY

PEST ANALYSIS

PORTER’S FIVE FORCES FRAMEWORK

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