CEMENT INDUSTRY

Prof. KRISHNA RAM

Cement Industry

World Cement Production

World cement production is about 2.27 billion metric tones www.researchinchina.com) (Source: www.researchinchina.com) China (40%+ of world production) India USA

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 Cement

La Farge, France Holcim, Switzerland Cemex, Mexico Italcementi, Italy Heidelberg Cement, Germany

Distribution of World Cement Production

A Primer on the Indian Cement Industry

Highly fragmented (low entry barriers) Cyclical industry Highly capital & energy intensive Heavily taxed sector High bulk (volume) low value product Heavy dependence on 3 sectors viz. coal, power and transport

Current Situation
Growth Rate of 11.16% Industry Capacity - 157 million tons Per capita Consumption of Cement in IndiaIndia110 kg against World Average - 250 kg Cement Industry is segmented in regionsregionsNorth, West, East, South, etc.

SWOT ANALYSIS
Strengths Weaknesses

Increase in demand Capacity utilization over 90%

Cement Industry is highly fragmented Industry is also highly regionalized

Opportunities

Threats

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

Government intervention to adjust cement prices Transportation cost is scaling high; bottleneck due to loading restrictions

Segments and Grades of Cement

Ordinary Portland cement (OPC) White Cement Portland Blast Furnace Slag Cement (PBFSC) Specialized Cement Water Proof Cement

Major Players of Cement Industry 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 Players in 2006

Major
ACC Ultratech Gujarat Ambuja

12.6 34.8 9.7

Grasim Industries Century Textiles and Industries Birla Corp Ltd India Cements Jaiprakash Industries (Jaypee) Lafarge Others

10.6 3.2 4.5 5.9 3.6 4.7 10.3

Mergers & Acquisitions

Flurry of consolidation in the last 3 years. Notable ones include: Gujarat Ambuja picking up 14% in ACC Grasim acquiring cement business of L&T forming UltraTech ABG has 17 plants, 8-Grasim and 9-Ultratech 89Holcim taking minority stake in GACL and 67% stake in ACC Heidelberg Cement acquiring 50% in Indorama Cement

Contribution to Economy
The cement industry accounts for approximately 1.3% of GDP and employs over 0.14 million people It is a significant contributor to the revenue collected by both the central and state governments through excise and sales taxes

Declining Role of Public Sector

One of the most important areas of operations for the Indian private sector Among cement public sector undertakings (PSUs), Cement Corporation of India (CCI), a central PSU, is the leading player Private sector (large companies) accounts for around 95% of the total installed capacity

Demand and Supply

Surplus has declined from 0.42 mt in 2005 to 0.23 mt in 2006 Capacity utilization in 2006 84% in 2005 to 90%

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

Government 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 Exports
6 MT exports in 2006 Cement exports were higher by 47.7% Expected CAGR of 10-12 per cent over 10the next 4-5 years 4-

FDI/FII
100% FDI permitted

Foreign players entry by Mergers and Acquisitions

Cost structure
The 2 major costs in cement industry are (i) Energy costs (ii) Freight costs Over the years, the share of energy costs have gone up marginally while that of freight costs has declined Other costs more or less stable

Energy Management & Technology 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 Rating

Energy costs account for nearly 30-40% of the total 30costs of cement production. Thus, the use of wastes as alternative fuels (like tire derived fuels (TDF) )in cement plants is technically, ecologically and economically justified. Green Rating Project (GRP) which looks at the environmental health of the sector, has now rated the cement sector.

Impact of Budget (2007-2008) (2007Exercise 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!
GDP growth expected to fuel the boom Increased spending on roads and housing expected Bharat Nirman and concomitant rural development also can push up the figures On the whole infrastructure spending expected to drive growth in cement and construction activities Growth at 9% per annum from 2007-2010 2007Production expected to increase to 196 mt by 2010 Consumption expected to increase to 190 mt by 2010

Global outlook for cement & construction industry

Annual cement demand to grow 4.7% Construction boom in China (Olympics) & India (housing, infrastructure) to drive projects till 2010 Half the world s concrete production and a third of the steel production goes into China for her construction projects

References:
Prowess Database www.edelcap.com www.pinsentmasons.com www.icra.in www.hinduonnet.com Survey of Indian industry, 2006 published by The Hindu

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