1.

Cement Industry Overview

Cement is one of the essential components of the construction industry. In this age of infrastructure development, cement has become one of the key contributors to economic growth. The cement sector is one of the significant growth sectors in Bangladesh. There are more

than 70 operational cement factories in Bangladesh and daily production capacity of the industry currently stands at 16.687 Million MT. 1.1 The Global Cement Industry
The history of the cement industry dates back to the 18th century. The invention of Portland Cement is generally credited to Joseph Aspedin, an English Bricklayer in 1824. After 1900 there was rapid growth in both rotary kiln and auxiliary equipment technology in the United States. Coal grinding mills were developed and coal burning in cement kilns became the predominant combustion process in the industry. All the equipments related to cement production - crusher, raw mill, belt conveyors, bucked elevators were improved.

The global cement industry has exhibited healthy growth historically. For the last 20 years, annual growth has averaged 5%, the equivalent of 100 million additional tons being consumed per year. Growth is strongest in the emerging markets. This is because increasing urbanization creates demand for housing and infrastructure.
The global cement industry is somewhat fragmented, with most markets served by local producers. Beginning in Europe in the 1970s, then continuing in the United States during the 1980s and later in Asia (outside China), the cement industry underwent significant worldwide consolidation. Today, there are just a handful of multinational cement companies, including Lafarge (France), Buzzi (Italy), Cemex (Mexico), Cimentos de Portugal SGPS, S.A. Cimpor (Portugal), Heidelberg Cement (Germany), Holcim (Switzerland), Talcementi (Italy), Taiheiyo (Japan), and Votorantim (Brazil). These companies compete against local producers in various markets around the world.

Cement production is quite capital intensive. To build a new dry process cement line producing 1 million tonnes annually costs between 50 million euros and 160 million euros depending on the country in which it is located. Some countries or regions are more exposed during certain periods

than others owing to factors such as strength of demand, market access and raw materials reserves.

Emerging markets (notably China, India Central & Eastern Europe and Africa) represent 70% of the worldwide market, with North America and Western Europe accounting for most of the remainder. A countrys cement demand is generally related to growth in per capita income, which usually correlates with the countrys industrialization. As emerging markets become industrialized, cement consumption tends to grow rapidly with increased expenditure on public works and housing .

1.2 Brief Look at Cement Production Process

Raw Materials: The main raw materials used in the cement manufacturing process are limestone, sand, shale, clay, and iron ore. The main material, limestone, is usually mined on site while the other minor materials may be mined either on site or in nearby quarries. Another source of raw materials is industrial by-products.

Extraction: The raw materials needed to produce cement (calcium carbonate, silica, alumina and iron ore) are generally extracted from limestone rock, chalk, clayey schist or clay. Suitable reserves can be found in most countries. These raw materials are extracted from the quarry by blasting. They are then crushed and transported to the plant where they are stored and homogenized.

Raw Grinding and Burning:

Very fine grinding produces a fine powder, known as raw meal, which is preheated and then sent to the kiln. The material is heated to 1,500C before being suddenly and dramatically cooled by bursts of air. This produces clinker, the basic material required for the production of all cements.
Cement Grinding and Shipping:

A small amount of gypsum (3-5%) is added to the clinker to regulate how the cement will set. The mixture is then very finely ground to obtain "pure cement". During this

phase, different mineral materials, called "cement additives", may be added alongside the gypsum. Used in varying proportions, these additives, which are of natural or industrial origin, give the cement specific properties such as reduced permeability, greater resistance to sulfates and aggressive environments, improved workability, or higher-quality finishes. Finally, the cement is stored in silos before being shipped in bulk or in bags to the sites where it will be used. 1.3 Cement Types
The main two types of cement that are used in construction in Bangladesh are Portland Composite Cement (PCC) and Ordinary Portland Cement (OPC). Portland Composite Cement:

A hydraulic cement produced by milling 94-80 parts (by weight) of Portland cement clinker together with a corresponding amount of at least two kinds of additives (6-20 parts) and a quantity of gypsum.

Fields of use include:

General purpose All kinds of concrete structures High-rise buildings Road pavements General purpose prefabricated concrete components Bridges and viaducts Water storages Concrete brickets Wall and plaster Concrete sewage pipes

Ordinary Portland Cement:

Ordinary Portland Cement (OPC) is manufactured in the form of different grades, by burning siliceous materials like limestone at 1400 degree Celsius and thereafter grinding it with gypsum. As such, Ordinary Portland Cement is used for quite a wide range of applications. Some of the Ordinary Portland applications are in pre-stressed concrete; dry-lean mixes, durable pre-cast concrete, and ready mixes for general purposes. The chemical components of Ordinary Portland Cement are Magnesium (MgO), Alumina (AL2O3), Silica (SiO2), Iron (Fe2O3), and Sulphur trioxide (SO3). Other than the two classes described above, white cements for architectural projects, cements for well drilling operations, cements containing silica fume or fly ash, pozzolan cements, and cements for road surfacing that incorporate slag and hydraulic binders, cements for masonry and mortars for concrete blocks, tiles, rendering, stucco, etc are also used, but such usage is very sparse. 1.4 Overview of the Cement Industry in Bangladesh

The development of the cement industry in Bangladesh dates back to the early-fifties but its growth in the real sense of the term started only about a decade or so ago. In Bangladesh demand for cement has soared in recent years mainly due to the property sector boom and infrastructure development concentrated in the Dhaka Metropolitan area and other major urban areas of the country. The infrastructural development at grass root level has led to an increased demand for cement at an average rate of 8% per annum during the past decade. The Chhatak Cement,Sunamganj, the single largest government-owned enterprise in this sector, has been producing cement since 1941 ; while Chittagong Cement Clinker Grinding Co.Ltd., Confidence Cement Company Ltd., Meghna Cement Mills Limited, Niloy Cement Industries Ltd.,Aramit Cement Limited-ACL, Mongla Cement,Khulna, Holderbank PLC, etc. are the major manufacturers in the private sector. Among the multinational giants, Cemex, Scancem, Holderbank, Emirates Cement and Lafarge are the top names. Due to environmental hazard and health consciousness, the developed countries, especially Europe, these groups are in favour of setting up of cement factories in the developing regions like Bangladesh. The state owned Chhatak Cement Factory and Ayeenpur Cement Industries Limited in private sector are two basic cement factories in the country, which uses limestone to produce

cement, while the rest of the factories simply import cement clinkers, crush the same, mix them with gypsum and put them into bags with a marginal value addition.

The four major Multinational cement Manufacturers in the country are Holcim (Switzerland), Lafarge (France), Cemex (Mexico) and Heidelberg cement (Germany). They have the following market shares:
12% 12% 9% 10% 8% 6% 4% 2% 0% Heidelberg Lafarge Cemex Holcim 8% 8%

The multinational companies, who have set up plants in the country, believe that the local production would be more than sufficient to meet the domestic demand and they would soon be able to dictate the market price as well as supply of cement through controlling the source of procurement of clinker as well as the network of distribution of finished cement. In apprehension, there is a number of locally established cement factories who are planning to get out of the business by way of selling to the giant operators.

1.5 Current Situation of Bangladeshs Cement industry

According to the market players, Bangladesh's cement industry is over-saturated with an annual capacity of 21 million tonnes against the demand for around only 8 million tonnes. The factories in operation are also unable to utilise their full capacity.

Bangladesh's cement industry totally depends on imported raw materials, of which clinker is the main one. About 5-6 million tonnes of clinker is imported annually from Thailand, Indonesia, Malaysia and the Philippines. Clinker is also imported in small quantity from India

by railway. According to industry sources, clinker price has increased to $73 a tonne from $55-63 a tonne a year ago. Price of other raw materials for cement like gypsum, fly-ash and slag has also increased substantially.

The country's cement industry is now in a critical state. Factories have surplus production capacity against a fall in consumption demand and are unable to pass on the additional cost on to the consumers. The factories in operation are also unable to utilise their full capacity.

Recently, more and more cement factories, especially small ones, are facing closure due to price hike of raw materials and low demand for the construction material.

Out of the 123 cement companies that had been registered with the Board of Investment, only 73 came into operation. Of these 73, at least 23 cement-manufacturing plants were shut down in last one year.

According to Bangladesh Cement Manufacturers Association (BCMA), most of the factories in Mongla, Khulna, Jessore and North Bengal areas have been shut down because of their financial inability to compete with big market players in the face of rising production cost.

At such a critical stage of the cement industry, the Multinational Cement Manufacturers should take prudent and calculated pricing and promotion strategies to hold on to their current market shares.

2. A Brief overview of the major Multinational Cement Producers in Bangladesh

The four major Multinational cement Manufacturers in the country are Holcim (Switzerland), Lafarge (France), Cemex (Mexico) and Heidelberg cement (Germany).

2.1 Heidelberg Cement (Germany) HeidelbergCement Bangladesh Ltd, one of the group companies of HeidelbergCement Group, founded in Germany in 1873, with its core products being cement, ready-mixed concrete, aggregates and related activities, is one of the leading producers of building materials worldwide. The group employs around 43,000 people in more than 50 countries. HeidelbergCement Bangladesh Limited meets 13% of the Bangladesh demand for cement from two plants located at Dhaka & Chittagong.

The company employs 260 people across the country. The company with 1.5 million tones annual cement production has become a major force in the Bangladesh Cement industry over the last eight years.

Through acquisition of Chittagong Cement Clinker Grinding Company Ltd., it has brought together regional manufacturing whose history stretches back to the very beginning of commercial cement production in Bangladesh.

In Bangladesh, Heidelberg group is one of the largest foreign investors having an investment of 100 million US$ with more than 260 employees working round the clock to materialize the mission of this great global company. By satisfying the needs and aspirations of its customers, employees, shareholders and the wider community, the company is able to maintain its position of strength as a sustainable cement provider without compromising commitment to long term stability and environmental responsibility.

2.2 Lafarge Surma Cement (France ) Lafarge of France and renowned Spanish cement producer Cementos Molins have set up a state-of-the-art fully integrated cement plant at Chhatak, Sunamganj in north east Bangladesh. It is a unique project as the raw materialslimestone and shale are being brought from the quarry across the international border in East Khasi Hills in Meghalaya (India) by a 17 kilometer long belt conveyor.

Lafarge Surma Cement Ltd. extracts and processes the basic raw materials like limestone and shale from its from its own quarry in Meghalaya, India. A 17 km crossborder belt conveyor has been installed to link the quarry with the cement plant for transportation of raw materials. A massive land filling and site development has been completed on the 90 acre plant site. The construction and erection is also. The plant initially produced 1.2 millions tons of cement per year. 2.3 Cemex ( Mexico ) In November, 1999, CEMEX made its inception in Bangladesh. Cemex Bangladesh started sales and distribution activity in May 2000 by importing finished goods from Indonesia. Sales and distribution was limited at that time. On April 2001, ground breaking ceremony of local plant and started construction of own manufacturing unit was held. On 21 April, 2001, Cemex Bangladesh started own manufacturing and started sales of own manufactured product instead of import of finished product. Founded in 1906 in Mexico, CEMEX is one of the three largest cement companies in the world, with close to 81.5 million metric tons of production capacity. CEMEX has production and distribution operations in 30 countries and trade relationships with approximately 60 countries through its operating subsidiaries in four continents. CEMEX is engaged in the production, distribution, marketing and sale of cement, ready-mix concrete, aggregates and clinker. In addition, the company is world's leading producer of white cement and one of the world's largest traders of cement and clinker. CEMEX combines a deep knowledge of the local markets with its global network and information technology systems to provide worldclass products and services to its customers, from individual homebuilders to large industrial contractors. CEMEX is represented in Bangladesh through CEMEX Cement Bangladesh Ltd. (CCBL). From year 2000, CEMEX have expanded its operations to Bangladesh. During earlier years it used to import cement from Indonesia and used to distribute only. No manufacturing facility was available. In 2001, CEMEX Cement Bangladesh set up of its own plant. Currently CCBL is dealing with two types of cement - CEMEX Ordinary Portland Cement and CEMEX Portland Composite Cement. CEMEX Cement Bangladesh has earned a well-reputed respect for its finest quality and service, exceeding customers' expectations.

2.4 Holcim (Switzerland) Holcim Bangladesh began its journey in September 2000 through acquisition of Hyundai Cement Bangladesh. Gradually, Holcim solidified its interest in Bangladesh by acquiring two more plants: United Cement Industries at Meghnaghat and Saiham Cement Industries at Mongla. Holcim Bangladesh Ltd, under the umbrella of Holcim Switzerland, started its operation in 2000.Currently the company has three plants in the country with a total capacity of 1.3 million ton/year and a mission of "Building the Foundation for the Society". Holcim is committed to global standards in both production and distribution and also with regard to environmental and social responsibility. The local group companies focus on optimum customer service, which also includes innovative product-specific services. Holcim (Bangladesh) Ltd offers four types of cement: Holcim Black, Holcim Red, Holcim Grey , Holcim Blue.

Porters five forces model- cement industry

Figure: Porters Five Forces Model

1. Bargaining power of the suppliers:

One of the main raw materials for the cement industry is clinker. Other raw materials include specially made cement bags and fuel. As there are very few substitute for the raw material bargaining power of the suppliers is high, especially for local companies. Poor management of supply chain can cause scarcity of raw material, failure to receive consignment in time, inability to charter transportation etc which hampers production severely and increase production cost. Moreover, there are many cement companies currently operating in Bangladesh, so the market is fragmented for suppliers which give them high bargaining power. MNCs buy their raw material from their respective parent company. Although they also have to negotiate with their own suppliers they face fewer problems than local companies.

2. Bargaining power of the customers:

Customers of cement usually purchase in bulk, so there is a concentration of buyers. Also customers are price sensitive and more so in our country. On the other hand, switching to alternative product is not simple. So bargaining power of customers is moderately high.

3. Threat of New Entrants:

Although there is stiff competition in the industry, threat of new entrants is low due to high barriers to entry given below: Economies of scale: In the current market scenario, many firms are already operating in their full capacity which is double the current market demand (for example Holcim).As a result, there is decreasing returns to scale. Cost of production: There is high initial investment and fixed cost along with scarcity of resources. All raw materials such as clinker, fuel has to be imported and their cost always rises. Cost advantages of existing players: Many firms in the market with huge production have lower production cost as their cost is dispersed among the large volume. They have cost advantages due to experience curve which shows that as firm become more experienced their cost decreases until reaching an optimum output point. Scarcity of resources: Many existing territory are controlled by existing players (for example, Lafarge in Sylhet). Moreover, strong network and customer relationship is necessary to compete in the market which is a very difficult task for new entrants. There is also scarcity of location as in cement industry major cost is logistics.

4. Threat of Substitutes:
As there are few if any substitute or complementary products for cement at present there is no threat of substitutes.

5. Competitive Rivalry between Existing Players:

Currently there is stiff competition among the existing players. Although demand is consistently increasing with the current trend of urbanization and blooming real estate sector, production capacity is still higher. Some of the MNCs are even exporting to other countries. There is not much product differentiation and customers can switch easily. In case of MNCs all of them have more or less same market share in the market. So there is much rivalry in the market.

Pricing: There can be two kind of pricing for cement- Product driven and demand driven. In product driven pricing, price is set on production cost and cost of raw materials. For example, Lafarge has lower cost due to huge production so their cost is distributed over larger volume. On the other hand, even if price is low demand in the market can be also low depending on the need of the customers. Price change in one firm can affect others. If one firm changes the price, other firms also may react by changing their price as they want to keep their market share. This trend can be observed in the pricing of MNCs. In the cement industry, the price is more or less stable than price of other construction materials. Usually MNCs target segment is quality conscious and high end customers, so there price is higher than local brands ranging from In case of MNCs, Holcim currently has the highest price as it has higher brand value.