ISO-8859-1 Eco Cement

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Cement IndustryCement Industry



World Cement ProductionWorld Cement Production

World cement production is about 2.27 billionWorld cement production is about 2.27 billionmetric t onesmetric t ones

(Source:(Source: www.researchinchina.comwww.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 t o 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 Cement Global 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

Producti

on



A Primer on the Indian Cement A Primer on the Indian Cement

IndustryIndustry Highly f ragmented (low entry barriers)Highly f ragmented (low entry barriers)

Cyclical industryCyclical industry

Highly capital & energy intensiveHighly capital & energy intensive

Heavily taxed sect orHeavily taxed sect or

High bulk (vo

lume) lowvalue pr

oduct High bulk (

volume) l

owvalue pr

oduct

Heavy dependence on 3 sect ors viz. coal,Heavy dependence on 3 sect ors viz. coal,power and transport power and transport



Current SituationCurrent Situation

Growth Rate of 11.16%Growth Rate of 11.16%

Industry CapacityIndustry Capacity -- 157 million t

ons157 milli

on t

ons

Per capita Consumption of Cement in IndiaPer capita Consumption of Cement in India--

110 kg against Wo

rld Av

erage110 kg against Wo

rld Av

erage -- 250 kg250 kg

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



SWOT ANALYSISSWOT ANALYSIS

StrengthsStrengths

Increase in demandIncrease in demand

Capacity utilization overCapacity utilization over90%90%

WeaknessesWeaknesses

Cement Industry isCement Industry ishighly f ragmentedhighly f ragmented

Industry is also highlyIndustry is also highlyregionalizedregionalized

OpportunitiesOpportunities

DemandDemand supply gap bcozsupply gap bcozLower per capitaLower per capita

consumption as compared t o consumption as compared t o developing countries (=1/3developing countries (=1/3

rd of world average)rd of world average)

ThreatsThreats

Government Government intervention t o adjust intervention t o adjust

cement pricescement prices Transportation cost isTransportation cost is

scaling high; bottleneckscaling high; bottleneckdue t o loadingdue t o loading

restrictionsrestrictions



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 IndustryMajor Players of Cement Industry

in Indiain IndiaThe Associated Cement CompaniesLimited (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

Laf ar e



Indian Cement IndustryIndian Cement Industry MajorMajor

Players in 2006Players in 2006

12.6

9.7

10.6

10.34.73.65.94.5

3.2

34.8

ACC

Ultratech

Gujarat Ambuja

Grasim Industries

Century Textiles and

Industries

Birla Corp Ltd

India Cements

Jaiprakash Industries

(Jaypee)

Lafarge

Others



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

include: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 ABG has 17 plants, 8--Grasim and 9Grasim and 9--UltratechUltratech

Holcim taking minority stake in GACL and 67% stake inHolcim taking minority stake in GACL and 67% stake in ACC ACC

Heidelberg Cement acquiring 50% in Indorama Cement Heidelberg Cement acquiring 50% in Ind

orama Cement



Contribution t o EconomyContribution t o Economy

The cement industry accounts forThe cement industry accounts forapproximately 1.3% of GDP and employsapproximately 1.3% of GDP and employsover 0.14 million peopleover 0.14 million people

It is a signif icant contribut or t o theIt is a signif icant contribut or t o therevenue collected by both the central andrevenue collected by both the central andstate governments through excise andstate governments through excise andsales taxessales taxes



Declining Role of Public Sect orDeclining Role of Public Sect or

One of the most important areas of One of the most important areas of operations for the Indian private sect oroperations for the Indian private sect or

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

Private sect or (large companies) accountsPrivate sect or (large companies) accountsfor around 95% of the t otal installedfor around 95% of the t otal installedcapacitycapacity



Demand and SupplyDemand and Supply

Surplus has declined f rom 0.42 mt in 2005Surplus has declined f rom 0.42 mt in 2005t o 0.23 mt in 2006t o 0.23 mt in 2006

Capacity utilizationCapacity utilization 84% in 2005 t o 90%84% in 2005 t o 90%in 2006in 2006

India per capita Cement Production 0.13India per capita Cement Production 0.13t ones in 2006 whereas globally 0.3 t onest ones in 2006 whereas globally 0.3 t ones



Government RegulationsGovernment Regulations

Price and Distribution Controls (1940-1981)

Partial Decontrol (1982-1988)

Total Decontrol (1989)

Fact ors (under Govt.) Inf luencing Prices of the Cement:Coal

ElectricityInf rastructureLime st oneTransport



Cement ExportsCement Exports

6 MT exports in 20066 MT exports in 2006

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

ExpectedExpected CAGR of 10CAGR of 10--12 per cent over12 per cent overthe next 4the next 4--5 years5 years



FDI/FII

100% FDI permitted

Foreign players entry by Mergers and Acquisitions



Cost structureCost structure

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

(i) Energy costs(i) Energy costs

(ii) Freight costs(ii) Freight c

osts Over the years, the share of energy costsOver the years, the share of energy costs

have gone up marginally while that of have gone up marginally while that of f reight costs has declinedf reight costs has declined

Other costs more or less stableOther costs more or less stable



Energy Management & TechnologyEnergy Management & Technology

Upgradatio

nUpgradatio

n The energy consumption by the cement industry is

almost 5% of the t otal global industrial energyconsumption

Energy conservation measures are cost eff ective andbacked by the energy eff iciency bill passed by theparliament recently

Using PI sof

twareof

OSIsof

t all the 17 Plantsof

AdityaBirla Group (investment of Rs. 5 crore) all over India areintegrated f rom Shop Level t o Top Level



Use of Alternate Fuels & GRP RatingUse of Alternate Fuels & GRP Rating

Energy costs account for nearly 30Energy costs account for nearly 30--40% of the t otal40% of the t otalcosts of cement production.costs of cement production.

Thus, the use of wastes as alternative f uels (likeThus, the use of wastes as alternative f uels (like tiretirederived fuels (TDF)derived fuels (TDF) )in cement plants is technically,)in cement plants is technically,ecologically and economically justif ied.ecologically and economically justif ied.

Green Rating Pro ject (GRP) whichGreen Rating Pro ject (GRP) which looks at thelooks at theenvironmental health of the sect or,environmental health of the sect or, has now rated thehas now rated thecement sect or.cement sect or.



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

Exercise duty based on Price

Increased allocation for Inf rastructure pro jects

Railway budget: decrease in the f reight rates forDiesel, Limest one, Petrol

Removal of tax exemptions for thecontract ors



Path Ahead!Path Ahead! GDP growth expected t o f uel the boomGDP growth expected t o f uel the boom

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

Bharat Nirman and concomitant rural development also Bharat Nirman and concomitant rural development also

can push up the f igurescan push up the f igures

On the whole inf rastructure spending expected t o driveOn the whole inf rastructure spending expected t o drive

growth in cement and construction activitiesgrowth in cement and construction activities

Growth at 9% per annum f rom 2007Growth at 9% per annum f rom 2007--20102010

Production expected t o increase t o 196 mt by 2010Production expected t o increase t o 196 mt by 2010

Consumption expected t o increase t o 190 mt by 2010Consumption expected t o increase t o 190 mt by 2010



Global outlook for cement &Global outlook for cement &

constructi

on industryc

onstructi

on industry

Annual cement demand t o grow 4.7% Annual cement demand t o grow 4.7%

Construction boom in China (Olympics) &Construction boom in China (Olympics) &India (housing, inf rastructure) t o driveIndia (housing, inf rastructure) t o drivepro jects till 2010pro jects till 2010

Half the worlds concrete production and aHalf the worlds concrete production and athird of the steel production goes int o third of the steel production goes int o China for her construction pro jectsChina for her construction pro jects



Ref erences:Ref erences:

Prowess DatabaseProwess Database

www.edelcap.comwww.edelcap.com

www.pinsentmasons.comwww.pinsentmasons.com www.icra.inwww.icra.in

www.hinduonnet.comwww.hinduonnet.com

Survey of Indian industry, 2006 publishedSurvey of Indian industry, 2006 publishedby The Hinduby The Hindu



BARRIERSBARRIERS TOTO ENTRY ENTRY Cement Cement beingbeing aa highhigh bulkbulk andand lowlow valuevalue commodity,commodity, outwardoutward f reight f reight accountsaccounts forfor closeclose t ot o oneone f if thf if th of of thethe t otalt otalmanuf acturingmanuf acturing cost cost.. InIn addition,addition, forfor everyevery t onnet onne of of cement cement produced,produced, closeclose t ot o 11..77 t onnest onnes of of rawraw materialmaterial(including(including coal)coal) isis transportedtransported.. InIn thisthis scenario,scenario, thethe locationlocation of of thethe cement cement plant plant becomesbecomes crucialcrucial.. WhileWhile decidingdecidingonon thethe plant plant location,location, therethere isis aa tradetrade--off off betweenbetween proximityproximity t ot o rawraw materialmaterial sourcessources andand proximityproximity t ot o marketsmarkets.. A A split split--locationlocation cement cement plant plant cancan bebe aa goodgood compromisecompromise betweenbetween thethe twotwo optionsoptions.. TheThe plant plant alsoalso hashas t ot o addressaddressissuesissues of of logisticslogistics (evacuation(evacuation of of cement cement byby rail,rail, roadroad oror waterways),waterways), powerpower availabilityavailability inin thethe region,region, andandTheThe f irst f irst strategystrategy isis t ot o locatelocate manuf acturingmanuf acturing f acilitiesf acilities nearnear thethe consumingconsuming centrescentres.. InIn thisthis case,case, outwardoutward f reight f reight isis minimisedminimised andand marketingmarketing f lexibilityf lexibi lity enhancedenhanced at at thethe cost cost of of higherhigher rawraw materialmater ial assemblyassembly costscosts.. TheThe secondsecondstrategystrategy isis t ot o locatelocate thethe plant plant closeclose t ot o thethe mineralmineral deposits,deposits, soso asas t ot o minimiseminimise rawraw materialmaterial assemblyassembly costscosts.. GivenGiventhat that 11..44--11..55 t onnest onnes of of limest onelimest one areare requiredrequired perper t onnet onne of of clinker,clinker, locatinglocating thethe plant plant alongalong thethe limest onelimest one depositsdeposits

isis thethe logicallogical corollarycorollary.. Occasionally,Occasionally, asas inin areasareas likelike SatnaSatna,, RewaRewa,, andand Raipur,Raipur, thethe coalcoal pitheadspitheads areare alsoalso quitequitecloseclose byby..availabilityavailability of of materialsmaterials (limest one,(limest one, coal,coal, slag,slag, etc)etc)..TheThe bulkbulk of of thethe cement cement manuf acturedmanuf actured isis consumedconsumed nearnear urbanurban centrescentres.. InIn thethe manuf acturemanuf acture of of cement,cement, forfor everyevery11 t onnet onne of of clinker,clinker, about about 11..66--11..77 t onnest onnes of of limest onelimest one andand coalcoal needneed t ot o bebe assembledassembled.. ForFor OPC,OPC, anotheranother 5050 kgkgof of gypsumgypsum isis requiredrequired whilewhile grindinggrinding thethe clinkerclinker downdown.. ForFor PPC,PPC, upup t ot o anotheranother 250250 kgkg of of pozzolonicpozzolonic materialmaterialsuchsuch asas f lyf ly ashash requiresrequires t ot o bebe assembledassembled.. Thus,Thus, therethere cancan bebe twotwo broadbroad locationallocational strategies,strategies, stemmingstemming f romf romthethe principalprincipal objective,objective, whichwhich isis not not merelymerely t ot o minimiseminimise unit unit--manuf acturingmanuf acturing cost,cost, but but t ot o minimiseminimise unit unit delivereddeliveredcost cost asas wellwell.. As As cement cement isis aa lowlow value,value, highhigh bulkbulk commodity,commodity, f reight f reight cost cost becomesbecomes aa signif icant signif icant f act orf act or inin deterdeter miningmining thethelandedlanded cost cost of of cement cement.. ThisThis hashas resultedresulted inin aa veryvery lowlow volumevolume of of interinter nationalnational tradetrade inin cement cement.. WorldWorld cement cement tradetrade hashas averagedaveraged just just aroundaround 66--77%% of of thethe t otalt otalproductionproduction.. Although, Although, worldworld tradetrade inin cement cement isis limitedl imited becausebecause of of highhigh f reight f reight costs,costs, therethere areare countries,countr ies, whichwhich eithereither import import aa signif icant signif icant shareshare of of theirtheir t otalt otal consumptionconsumption oror export export aa majormajor shareshare of of theirtheir t otalt otal productionproduction.. Countries,Countries, whichwhichimporimpor t t aa signif icant signif icant shareshare of of theirtheir consumption,consumption, appearappear t ot o bebe f allingf alling inin thethe developingdeveloping worldworld category,category, wherewhere

thethe publicpublic expenditureexpenditure onon inf rastructureinf rastructure pro jectspro jects isis veryvery highhigh.. TheThe MiddleMiddle East East countriescountries (although(although not not f allingf allinginin thethe developingdeveloping worldworld category)category) havehave hugehuge requirementsrequirements of of cement cement becausebecause of of constructionconstruction workwork inin pro jectspro jectsinin thethe oiloil sect orsect or.. Also Also inin thesethese countries,countries, unf avourableunf avourable conditionsconditions (for(for example,example, inadequateinadequate cement cement limest onelimest onereserves)reserves) havehave discourageddiscouraged cement cement capacitycapacity creationcreation.. Countries,Countries, whichwhich export export aa largelarge shareshare of of theirtheir domesticdomestic production,production, appearappear t ot o bebe havinghaving oneone thingthing inin commoncommon..CountriesCountries withwith highhigh export export thrust thrust opt opt forfor bulkbulk transportationtransportation forfor exportingexporting cement cement.. ForFor example,example, byby optingopting forfor bulkbulktransportation,transportation, GreeceGreece isis inin aa positionposition t ot o export export overover 5050%% of of itsits cement cement productionproduction.. BulkBulk transportationtransportation leadsleadst ot o signif icant signif icant advantagesadvantages suchsuch asas savingssavings inin f reight f reight costscosts andand packingpacking costs,costs, avoidanceavoidance of of transit transit loss,loss,adulteration,adulteration, pilf erage,pilf erage, burstingbursting of of bagsbags andand damagedamage t ot o cement cement.. At At thethe exex--f act orf act or yy level,level, IndianIndian cement cement isis quitequite competitivecompetitive withwith manymany globalglobal cement cement producingproducing regionsregions.. However,However,aa plethoraplethora of of dutiesduties alongalong withwith inf rastructureinf rastructure bottleneckbottleneck reducesreduces thisthis competitivenesscompetitiveness.. As As cement cement isis primarilyprimarily aaregionalregional commodity,commodity, internationalinternational competitivenesscompetitiveness isis not not reallyreally aa seriousserious issueissueOutwardOutward freightfreight onon cementcement isis anan importantimportant elementelement inin thethe operatingoperating costcost ofof aa cementcement plantplant.. ItIt accountsaccounts forfor aroundaroundoneone thirdthird of of thethe t otalt otal variablevariable costscosts.. Most Most of of thethe cement cement plantsplants inin IndiaIndia areare locatedlocated inin andand aroundaround thethe limest onelimest oneclustersclusters.. TheseThese clustersclusters areare distant distant f romf rom thethe collieriescollieries andand thethe marketsmarkets forfor cement cement.. Cement Cement hashas anan averageaverage leadleadof of aroundaround 535535 kmkm.. Thus,Thus, cement cement companiescompanies havehave t ot o relyrely onon extensiveextensive transportationtransportation forfor movingmoving coalcoal f romf rom thethecoalcoal pitheadspitheads t ot o thethe cement cement plantsplants andand forfor despatchingdespatching cement cement f romf rom thethe plant plant t ot o thethe marketsmarkets.. As As bothboth coalcoal andandcement cement areare of of lowlow valuevalue andand bulkybulky inin nature,nature, f reight f reight costscosts areare considerablyconsiderably highhigh forfor cement cement plantsplants.. Cement Cement companiescompanies useuse bothboth roadroad andand railrail transport transport t ot o transport transport cement cement andand t ot o receivereceive coalcoal.. RailRail despatchesdespatchesamount amount forfor about about 3333%% whilewhile roadsroads carrycarry thethe balancebalance 6666%%.. TheThe balancebalance 11%% isis accountedaccounted byby SeaSea transporationtransporation..TheThe shareshare of of roadroad overover railrail hashas onlyonly gonegone upup overover thethe yearsyears.. ForFor coalcoal transportation,transportation, thethe dependencedependence onon railrailnetworknetwork isis stillstill veryvery highhigh andand accountsaccounts forfor aroundaround 7070%% of of coalcoal movement movement Although Although railrail transportationtransportation isis moremore economicaleconomical forfor distancesdistances beyondbeyond 250250--300300 km,km, cement cement companiescompanies havehave startedstarted pref erringpref erring roadroad transportationtransportation eveneven forfor longerlonger distancesdistances becausebecause of of severalseveral reasonsreasons.. RisingRising railwayrailway traff ictraff iccoupledcoupled withwith insuff icient insuff icient investmentsinvestments byby thethe railwaysrailways forfor increasedincreased wagonwagon suppliessupplies andand thethe f act f act that that thethe cement cement industryindustry isis not not anan important important cust omercust omer of of thethe RailwaysRailways (cement (cement cargocargo accountsaccounts forfor just just 77--88%% of of thethe t otalt otal railwayrailwayf reight)f reight) havehave resultedresulted inin aa shortageshortage of of wagonwagon supplysupply t ot o thethe cement cement indust ryindustry.. TheThe railwaysrailways hadhad launchedlaunched thethe "Own"Own Y our Y our Wagon"Wagon" schemescheme--aa schemescheme wherewhere companiescompanies couldcould buybuy wagonswagons andand leaselease it it t ot o thethe RailwaysRailways andand thetheRailwaysRailways wouldwould inin turnturn operateoperate thesethese wagonswagons andand ensureensure theirtheir availabilityavailability t ot o thethe ownerowner.. But But thethe unf avourableunf avourable

terter msms andand conditi

onsc

onditi

ons

of of thisthis schemescheme pre

v

entedprev

ented itsits successf ulsuccess

f ul c

ommercialisati

onc

ommercialisati

on.. TheThe TheThe RailwaysRailways ha

v

ehav

e also

also

increasedincreased theirtheir tariff tariff onon aa regularregular basisbasis (of ten(of ten higherhigher thanthan thethe increasesincreases inin thethe roadroad sect or),sect or), makingmaking themthemuneconomicaluneconomical visvis--àà--visvis roadroad tariff stariff s eveneven forfor longerlonger distancesdistances..

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