Industry Scenario And Volume

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02 Nov 2017

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The cement industry in India has been enjoying its best period with a healthy growth in demand in the past two years. The industry has been operating at its near capacity during this period. The cement prices have been steady throughout the year with this firm demand position.

The all India clinker production picked up further by 6.05% to 129.70 million tonnes as compared to 121.75 million tonnes during the previous year. The overall production of cement in the country for the year ended March 2011 was up at 168.31 million tonnes as against 155.66 million tonnes in the previous year, registering growth rate of 8.01%. Domestic consumption grew further however lower at 3.65 million tonnes as against 5.88 million tonnes in the previous year due to a buoyant domestic market.

The cement industry is going through its boom period with full capacity utilization. Powered by the GDP growth of 8.09%, the annual demand in the country continues to grow at 8%-10%. As per NCAER study, under high growth scenario, the demand for cement (Including exports) is expected to increase 244.82 million tons by 2011-2012. As per study, the demand is expected to be much higher at 311.37 million tones. It the optimistic projection of the housing sector are met.

EXISTING CEMENT INDUSTRIES:

Some existing cement industries are Ambuja, Binani cement, Birla cement etc.

The Indian cement industry is presently dominated by Grasim and Gujarat Ambuja cement and is increasingly globalised with international player raising their stakes.

These companies control more than 45% of the market.

Gujarat Ambuja cement Ltd. is a major cement producing company in India.

The group's principal activity is to manufacture and market cement and clinker for both domestic and export market.

P T Semen Gresik Indonesia's biggest cement maker.

Statistics from the Indian high commission in Indonesia has revealed that trade turnover between Indonesia and India increased from US $ 537.53 million in 2011.

This said depicted an increase of 52% over the presiding year with India's exports to Indonesia at US $ 658.35 million as against an import figure of US $ 759.75 million.

INTRODUCTION

Cement is the glue that holds the concrete together, and is therefore critical for meeting society's needs of housing and basic infrastructure such as bridges, roads, water treatment facilities, schools and hospitals. Concrete is the second most consumed material after water, with nearly three tonnes used annually for each person on the planet. Being one of the basic elements for setting up strong and healthy infrastructure, Cement plays a crucial role in economic development of any country. Having more than a hundred and fifty years history, it has been used extensively in construction of anything, from a small building to a mammoth multipurpose project.

The manufacturing process of cement consists of mixing, drying and grinding of limestone, clay and silica into a composite mass. The mixture is then heated and burnt in a pre-heater and kiln to be cooled in an air-cooling system to form clinker, which is the semi-finished form. This clinker is cooled by air and subsequently ground with gypsum to form cement.

There are three types of processes to form cement - the wet, semi-dry and dry processes. In the wet/semi-dry process, raw material is produced by mixing limestone and water (called slurry) and blending it with soft clay. In the dry process technology, crushed limestone and raw materials are ground and mixed together without the addition of water.

The dry and semi-wet processes are more fuel-efficient. The wet process requires 0.28 tons of coal and 110 kWh of power to manufacture one tonnes of cement, whereas the dry process requires only 0.18 tonnes of coal and 100 kWh of power.

There are different varieties of cement based on different compositions according to specific end uses, namely, Ordinary Portland Cement, Portland Pozzolana Cement, White Cement, Portland Blast Furnace Slag Cement and Specialised Cement. The basic difference lies in the percentage of clinker used.

GLOBAL CEMENT SCENARIO

Cement is a cyclical industry in which long periods of growth are interspersed by shorter periods of decline. This also means that as a rule the number of markets in growth at any one time will exceed those in decline. This is a significant factor for the long-term outlook of the cement sector, meaning that growth prospects for the industry are encouraging, despite the 2007 downturn in the US.

The key growth drivers for cement consumption are population growth (increasing demand for housing, commercial building and infrastructure) and economic growth (driving up the consumption of cement per capita). Rapid urbanization and the booming infrastructure have lead to an increase in construction and development across India, attracting even the global players. Cement is a global industry made up of local markets. When a product is both heavy and cheap, transportation costs become a key factor in determining its profitability, so cement plants need to be close to customers. This is why global cement industry leaders are seeking to be present in as many local markets as they can, resulting in the growing dominance of the industry by its largest businesses.

According to the leading manufacturer of cement production equipment in the world, FL Smidth, world cement consumption is set to rise on average between 3.6% and 4.8% per year in the coming years. At the same time, the Portland Cement Association (the US cement sector’s trade body) is expecting world cement consumption to average more than 6% annually in the next two years, reaching 4.9 billion metric tons by 2012 (estimation Oct 2010). While much of this growth is set to come from emerging growth markets in Central and Eastern Europe and Asia, growth in mature markets also looks healthy.

The recent years have witnessed a surge of foreign direct investment in the cement sector. International players like France's Lafarge, Holcim from Switzerland, Italy's Italcementi and Germany’s Heidelberg Cements together hold more than a quarter of the total capacity.

Holcim, one of the world's leading suppliers of cement, has 24 plants in the country and enjoys a market share of about 23–25 per cent. It will further invest about US$ 2.49 billion in the next five years to set up plants and raise capacity by 25 MT in the country. Holcim has a global sale worth about US$ 20 billion, where India contributes US$ 2 billion–2.5 billion. Italcementi Group, which acquired full stake in the K K Birla promoted Zuari Industries' cement, for US$ 126.62 million in 2006 plans to invest US$ 174 million over the next two years in various greenfield and acquisition projects.

High concentration of cement production may be attributable to high capital costs and long gestation periods in cement industry. Access to limestone reserves principal raw material for the manufacture of cement) also acts as a significant entry barrier for newer companies.

WORLD CEMENT PRODUCTION 2010

Regionally, Asia contributed about 70% to world production and included 9 of the 20 leading producing countries. Western Europe had about 8% of total output; the Middle East (including Turkey) and North America, nearly 6% each Africa, Central America and South America (combined), and the Commonwealth of Independent States, about 4% each and Eastern Europe, about 2%.

United States is the largest trader of cement in the world, with total trade of US$ 1,396 million during 2008, followed by Germany, Belgium and Netherlands with total trade of US$ 945 million, US$ 744 million and US$ 562 million, respectively.

Despite being the second largest producer of cement in the world, India is not amongst the major traders of cement.

INDONESIAN CEMENT INDUSTRY

In Indonesia, nine cement companies operate 15 cement plants with a total installed production capacity of 46.1 million metric tons (MMT). PT Semen Gresik, PT Semen Padang, and PT Semen Tonasa are part of the Semen Gresik Group, which is 51% owned the Government and holds the largest market share of 45.3%. PT Indocement Tungga Prakarsa, a subsidiary of Heidelberg of Germany, is the second-largest player with a market share of 29.6%, and PT Holcim Indonesia, a subsidiary of Holcim of Switzerland, is the thirdlargest with a market share of 15.2%.

The top three companies have a 90% share of the market. PT Semen Gresik, PT Indocement Tunggal Prakarsa, and, to a lesser extent, PT Holcim Indonesia each operate several large plants across the country. However, 73% of their capacity is in Java, which accounts for over two thirds of their sales. The other four companies (PT Semen Andalas Indonesia [SAI], PT Semen Bosowa, PT Semen Baturaja, and

PT Semen Kupang) each operate a single plant or a few small plants in Sumatra or in other islands.

The cement design capacity and location of the cement plants of these companies are given in the table.

Company

Location of cement plants

Capacity

(tons)

Domestic

Sales

(tons)

Market

Share

(%)

Major Shareholder

PT Semen Andalas

Indonesia Aceh

1,124,580

-

3.6

Lafarge

PT Semen Padang

West Sumatra

5,440,000

3,876,732

12.3

PT Semen Gresik

PT Semen Baturaja

South Sumatra and Lampung

1,250,000

895,235

2.8

Government of Indonesia

PT Indocement Tunggal Prakarsa

West Java and South Kalimantan

15,650,000

9,335,415

29.7

Heidelberg

PT Holcim Indonesia

West Java and Central Java

9,700,000

4,793,114

15.2

Holcim

PT Semen Gresik

East Java

8,200,000

7,903,635

25.1

Government of Indonesia

PT Semen Tonasa

South Sulawesi

3,480,000

2,496,165

7.9

PT Semen Gresik

PT Semen BosowaMaros

South Sulawesi

1,800,000

922,363

2.9

Bosowa Group

PT Semen Kupang

East Nusa Tenggara

570,000

68,942

0.2

Government of Indonesia

In 2005, demand for cement grew at a slower 5% as rising oil prices and interest rates led to a slowdown in infrastructure investments. An increase in government spending on infrastructure development would drive up demand for cement. Assuming a yearly growth in demand of 6% over the next 5 years, the existing capacity will be met by 2012. The domestic producers are expected to respond to the rising demand by increasing their capacity through new or better-performing plants. As foreign investors are not restricted from entering the Indonesian cement industry, the entry of new players could generate additional capacity. These projects are, however, not expected to pose a major threat to existing cement players, given the large capital investment requirement and the need for well-developed distribution network and brand recognition.

In response to rising demand and higher domestic prices compared with export prices, these companies have progressively shifted their sales toward the domestic market. Further capacity expansions could come with the entry of new players. However, they are not expected to pose a major threat to existing cement players, given the large capital requirements for new plants and the need to develop a distribution network and brand loyalty.

With rapid increases in cement prices in the domestic markets—up to Rs 4100 per bag (equivalent to Rs.41/Kg) in 2010, or about 35% higher than the 2008 level—the risk of imports is also increasing. For example, the PRC could be an exporter to Indonesia. However, it is believed that the risk to the existing producers is limited, given the rapid growth that is expected to continue in the PRC. In terms of geographic locations, Java is the largest-consuming region with the highest share of 62% of the national demand. The top three cement producers, which competed aggressively for market share in this region, appear to have switched to a "for profit" rather than a "for market share" strategy to maximize shareholder value and improve financial health. In other regions, smaller producers are ranked among the top three companies in market share, given the limited radius of competition in the cement industry. For example, SAI is ranked second in Sumatra, while PT Bosowa Maros is ranked second in Sulawesi and eastern Indonesia.

Role of Cement Industry in Indonesian Economy

The above chart shows the relationship between Indonesia’s GDP Growth & Cement Sector Growth along with the Domestic Consumption data. The Cement Industry is growing at a good pace of around 9 % on an average of past 3 years annually compared to Its GDP of 6.6%. Also the domestic consumption of cement in Indonesia is increasing at a high sped.

The above chart represents comparison of Cement Consumption Per Capita of different countries of the world, including India and Indonesia. Indonesia’s cement per capita consumption is 172kg, while that of India is 143kg.

Structure of Cement Industry

Public (48.99%)

PT Semen Gresik

(Persero) Tbk.

PT Semen Padang

PT Semen Tonasa

The Govt. of the Republic of Indonesia (51.01%)

Four Subsidiaries non-cement producers:

Six Subsidiaries non-cement producers:

Name

Activities

% Ownership

Lgasar

Cement Distribution

12%

Sepatim B

General Trading, Cement Packaging

85%

Bima SA

General Trading, Cement Packaging

80%

SUPS

Cement Packaging

10%

Name

Activities

% Ownership

UTSG

Limestone & Clay Mining

55%

IKSG

Cement Packaging

60%

KIG

Industrial Estate

65%

Swadaya Gra

Steel Fabrication, Contractor

25%

Varia Usaha

Transport & General Trading

24.90%

Eternit Gresik

Building Materials

17.60%

Type of Cement and Uses

Indonesia produces various types of cement. The main type is OPC (Ordinary Portland Cement) or Portland Cement of Type I (CP I). Other types include special ones and mixed cement, for certain uses in relatively small quantity. Those categorized in the special types are Portland Cement of Type II (CPI II), Portland Cement of Types III (CPI III), Portland Cement of Type V (CPI V) and OWC (Oil Well Cement).Those categorized as Mixed Cement are PPC, fly ash cement, and Super Masonry Cement (SMC) and Masonry Cement.

Types of Cement

Portland Cement of Type I or Ordinary Portland Cement (OPC) is a cement type with standard quality used widely for general construction such as building constructions which do not need specifications such as house buildings, high rise buildings, bridges and roads.

Portland Cement of Type II is a type of cement more resistant to sulfates. Portland Cement of Type II is used such as for port pier, dam and bridge constructions and heavy foundation of buildings in soil having moderate content of sulfates.

Portland Cement of Type III is used for constructions needed high early pressure after pouring a cement foundation in a fast process, such as in road, bridge and airport construction.

Portland Cement of Type IV is used for constructions that need low hydration heat such as large dams, thick concrete buildings or buildings in dry areas.

Portland Cement of Type V gives better protection against corrosion from water or soil containing sulfates larger than 0.20% such as sea water, ground water and water in mining sites. This type of cement is used for constructions of pools processing waste from chemical factories, sea building, etc.

Oil Well Cement (OWC) is used for oil and natural gas well constructions of certain depth. OWC is different from other types of cement as it will become hard if it is used for oil wells under high temperature.

Mixed Cement is a mixture of cement almost the same types and produced from limestone as an additive to mixture of crusts and gypsum in the final process of grinding. This type of cement is suitable for light and medium construction (semi permanent) such as houses and low cost buildings.

PPC (Portland Pozzolan Cement) is a mixture of cement using pozzolan as the material. It is suitable for sea beach buildings or buildings in swampy areas, dams and waterworks that need resistance to sulfates and low hydration heat.

White Cement (CementPutih) is produced in the country only by PT Indocement Tunggal Prakarsa. It used mainly for terrazzo tiles, or for ceramic products and other decorative ornaments.

Composition of the Products

Most cement factories in Indonesia produce Portland Cement of Type I or Ordinary Portland Cement, which accounts for 88% of the country's total production of cement. Other types, mixed cement accounts for 11.6%, and the rest are made up of OWC, PC type II and Type V.

Key Drivers of Domestic Cement Demand:

National Economic Growth

Favorable Interest Rate Environment

Infrastructure Expansion

Per Capita Consumption increase from Current Low Levels

Functions of Cement Industry

Housing and infrastructure sectors constitute a major part of the total demand for cement in India. These two sectors have been further analyzed.

Housing

Housing, besides being a very basic requirement for the urban settlers, also holds the key to accelerate the pace of development. Investments in housing, like any other industry, have a multiplier effect on income and employment. Construction sector employment is growing at the rate of 7% per annum. Housing provides opportunities for home-based economic activities.

The Indian Housing sector has grown by leaps and bounds in the last few years. The total home loan disbursements to this sector has risen from Rs 19,723 Crore in the year ended 2000 to a massive Rs 2,52,932 Crore in the year 2010. This robust growth has been triggered by a number of factors. Some of which are:

Tax rebates on housing loans

Continued growth in population

Decrease in number of people per household (average size of household)

Rise in disposable income levels

Lower interest rates and easy availability of housing finance

Also the Housing Finance Companies and banks have introduced various schemes to attract the young generation borrower. Free home insurance, lower rates for purchase of consumer durables, household goods, and refinance options are some of the noteworthy schemes that the institutes have come up with to attract the borrowers.

The Indian housing industry is highly fragmented, with the unorganized sector, comprising small builders and contractors, accounting for over 70% of the housing units constructed and the organized sector accounting for the rest. The organized sector comprises large builders and government or government affiliated entities. The housing market witnessed a frenzied boom in the early nineties on the back of a booming stock market and a liberalization process that was kicked off in 1991.

While a marked increase in demand is being seen in the rural parts of predominantly underdeveloped states such as Bihar, Chhattisgarh and Uttar Pradesh, the hill states of Uttarakhand, Himachal Pradesh and the north-east are also seeing a spurt in demand. The Centre's latest estimates peg the estimated shortage of houses in rural areas at around 15 million as against an overall shortage of 22 million dwelling units in the rural and urban areas put together.

The Centre, under its Bharat Nirman programme, expects over six million houses to be built in rural areas over the next four years. Rural housing projects undertaken by about 15 states through their own capital subsidy or credit-cum-subsidy schemes have also resulted in rural housing coverage going up during the last few years. These states, including Tamil Nadu, Andhra Pradesh, Karnataka, Gujarat, Uttarakhand, Jharkhand, Sikkim, Meghalaya and Punjab, have together constructed about 48 lakhs houses from 2005 to 2009, according to Planning Commission estimates. The cement industry recorded another year of double digit demand growth (10 per cent for 2006-09). The demand buoyancy is witnessed across sectors with increased focus on infrastructure development, rising industrial activity, and strong real estate demand from commercial and residential sectors.

Infrastructure

Infrastructure projects along with commercial constructions accounts for about 35% of the total cement consumption in India. With the government increasing its focus on infrastructure spending, particularly on roads, ports and airports, the cement demand is likely to go up in the near future. Since India began opening up in 1991, until recently, the progress of infrastructure has been very poor and has been a zigzag process. But if one considers the following developments, it would be visible that India is turning the corner on the infrastructure question and in turn spurring the demand for cement.

Firstly, there are over a hundred Special Economic Zones (SEZs) in India either in operation or under construction. Many international companies, like Nokia and automotive makers like Volvo, are actually producing in the SEZs. Construction has been taking place –land clearance has been done to relocate squatters or farmers away from their land and this has already happened in the last five years or so.

The other thing to look at is the organized retail sector in India. There are well over 500 retail malls either already operating in India or in various stages of construction and this is also new in the last three to five years.

The various road projects under the National Highway Development Program (NHDP Phase I and II) initiated by the previous government are being successfully implemented by the present government. Further, government has also announced new projects namely NHDP Phase, III, IV, V and VI, which include having four lanes on high density highways, upgradation of existing highways, six-laning of roads under NHDP Phase I and also 1,000kms of new expressways. The total cost of these new projects is about Rs. 1,075 billion and is expected to be completed by FY2012. A total demand of close to 50 million tonnes of cement is expected from the above projects.

BUSINESS ACTIVITIES OF CEMENT INDUSTRY IN INDONESIA

There are seven main players with a combined design clinker capacity of 40.7 million tons per year and cement 44.9 million tons. Cement output in 2009 was 39.6 million tones. Much of the domestic cement supply is now extended by blending in fly ash or other enhancers so the actual capacity could be more however allowance should be made for the age of some cement plants and corresponding inefficiencies. Also, some plants are currently shut down such as Kupang.

• Design Capacity: 54.4 m ton

• Domestic Growth: 17.7%

• Domestic Utilization: 89%

• Total Utilization: 91%

• Supply:-Domestic: 48.0 m ton

Export: 1.2 m ton

Import: 1.8 m ton2

INDIAN CEMENT INDUSTRY

The cement industry in India dates back to 1914, with the setting up of its first unit in Porbunder. It is considered as one of the core infrastructure industries. It is the second largest producer of cement in the world just behind China, with industry capacity of over 200 million tonnes. It is consider to be a core sector accounting for approximately 1.3% of GDP and employing over 0.14 million people. Also the industry is a significant contributor to the revenue collected by both the central and state governments through excise and sales taxes.

The cement industry has continued its growth trajectory over the past seven years. Domestic cement demand growth has surpassed the economic growth rate of the country for the past couple of years. The growth rate of cement demand over the past five years at 8.37 % was higher than the rate of growth of supply at 4.84% as also the rate of growth of capacity addition during the same period. Demand for cement in the country is expected to continue its buoyant ride on the back of robust economic growth and infrastructure development in the country.

The Indian cement industry is extremely energy intensive and is the third largest user of coal in the country. It is modern and uses latest technology, which is among the best in the world. Only a small segment of industry is using old technology based on wet and semi-dry process. Also, the industry has tremendous potential for development as limestone of excellent quality is found almost throughout the country. In other words, it is experiencing a boom on account of overall growth of the Indian economy, cost control continuous technology up gradation, etc. This has immensely helped it to conserve energy and fuel as well as to save materials substantially.

Cement is an essential component of infrastructure development and most important input of construction industry, particularly in the government’s infrastructure and housing programs, which are necessary for the country’s socioeconomic growth and development. Cement ranks second in volume among the industrial products manufactured in the world. And it is the most widely used man-made product and second only to water as world’s most heavily consumed substance.

Cement is poly-phased inorganic compound of complex nature formed by burning of calcareous and argillaceous raw materials as a binding material. Cement is used as a binding material in various types of civil constructions. Earlier, clay or lime was used for binding materials together.

Its properties include-

Low cost, high performance, Binder with almost any hard material, Building block, Gain strength progressively with ageing Substitutes with steel, polyester, epoxy-resin, plasticizers With advancement in manufacturing technology, today cement is a completely technical product. Various types of grades of cement are being manufactured to satisfy different needs of the construction industry. However, cement is still considered as a non-technical product and used in a traditional and often unscientific manner.

There are around 11 different types of cement that are being produced in India. The production of all these cement varieties is according to the specifications of the BIS (Bureau of Indian Standards).

Some of the various types of cement produced in India are:

Clinker Cement

Ordinary Portland cement (OPC)

Portland Blast Furnace Slag Cement (PSC)

Portland Pozzolana Cement (PPC)

Rapid Hardening Portland cement

Oil Well Cement

White Cement

Sulphate Resisting Portland cement

Highlights of Indian Cement Industry @ as on 31st March, 2011

CEMENT PRODUCTION AND DESPATCHES (P)

January 2012 (Million Tonnes)

Description

Jan-12

Dec-11

Jan-11

(Apr-Jan)

Cement Production

16.47

15.72

14.82

145.00

137.16

Cement Dispatches

16.27

15.76

14.73

143.96

136.18

Large Cement Plants

Companies (Members) (Nos.)

42

Cement Plants (Nos.)

139

Installed Capacity (Mn. tn.)

234.30

Cement Production (Mn. tn.) 2009-10

168.29

Plants with Capacity of Million tonnes and above (Nos.)

97

Manpower Employed (Nos.) Approx

1,20,000

Turnover in 2010 (Mn. US$) around

18,000

Statistics - Mini & White Cement Plants

Cement Plants (Nos.) Approx.

365

Installed Capacity (Mn. tn.)

11.10(P)

Cement Production (Mn. tn.) 2010-11

6.00(P)

Cement Map of Gujarat

All India Ranking – 5

(As on 31st March, 2011)

(Cement Production in Million Tonnes)

Year

Capacity

Cement Production

Cement Consumption

Cement & Clinker Export

2010-2011

18.72 (7.99)

12.19 (7.24)

13.08

2.53

2009-10

16.82 (7.56)

11.49 (7.15)

11.54

3.23

2008-09

19.62 (8.86)

15.21 (8.38)

12.09

5.06

2007-08

19.07 (9.63)

15.40 (9.15)

11.68

5.11

2006-07

17.47 (10.41)

15.22 (9.78)

10.08

7.83

Details of Cement Plants and Grinding Units in Gujarat

Sl.No.

Name of Cement Company

Location

Annual Installed Capacity (MT)

1

Shree Digvijay Cement Company Ltd.

Sikka

1.07

2

Saurashtra Cement Ltd.

Ranavav

1.50

3

Gujarat Sidhee Cement Ltd.

Veraval

1.20

4

UltraTech Cement Ltd.

Pipavav

5.80

5

UltraTech Cement Ltd.

Jafrabad

0.50

6

UltraTech Cement Ltd.(G)

Magdalla

0.70

7

Sanghi Indus. Ltd.

Abdasa Taluka

2.60

8

JK Lakshmi Cement Ltd.(G)

Kalol

0.55

9

Jaiprakash Associates Ltd. - Kutch

Sewagram

2.40

10

Jaiprakash Associates Ltd. (G) - Wanakbori

Sonipur

1.40

Total

18.72

(G):Grinding Unit

Market Segment of Indian Cement Industry

Market segment — North

Key markets in northern India include the states of Rajasthan, Punjab, Haryana and the National Capital Region (NCR).

Demand in this region is being driven by growth in infrastructure, and residential and commercial construction. In the past few years, demand has been fuelled further by the metro project in Delhi NCR.

Market segment — West

The states of Maharashtra and Gujarat are the key markets in this region.

Over the past few years, growth in housing and commercial real estate has augmented the demand for cement in this region.

The western region also exports cement to countries in the Middle East.

Market segment — Central

The state of Uttar Pradesh is the key market in this region.

The demand for cement in this region has primarily grown due to an increase in the number of housing and infrastructure projects.

Market segment — East

The key markets in the east are the states of West Bengal, Orissa and Bihar.

Growth in housing and industrial activity is primarily driving demand for cement in this region.

Market segment — South

Key markets in the southern region are the states of Tamil Nadu, Andhra Pradesh and Karnataka.

The south zone has witnessed increased capacity in last few years due to its rich limestone reserves.

Growth in the real estate market in the region, coupled with the development of key infrastructure projects such as airport and metro rail, has resulted in increased demand for cement in this region.

Cement Plant Installed Capacity Growth in India

The above chart shows the cement plant installed capacity of Indian Cement Industry which is increasing at almost 8-10% every year. In 2010, cement capacity grew up to 235.9 Mt.

Comparison between Capacity & Production

The above graph shows the comparison between India’s Capacity, Utilization & the Actual Production of Cement across different Five Year Plan.

Exports of Cement from India

Exports of cement (total) decreased to 3.42 million tonnes in 2009-10 from 4.82 million tonnes in 2008-09. Portland grey cement had a share of 82% and cement clinker 12% in the total cement exports. Portland white cement and other cements together had a 6% share. Exports of cement in 2009-10 were mainly to Malaysia (30%), UAE (21%), Iraq (20%) and Yemen Republic (12%).

Exports Statistics

Country

2008-09

Qty (tns)

Value (Rs.000’)

2009-10

Qty (tns)

Value (Rs.000’)

Malaysia

298173

631744

1020049

2350505

UAE

766267

1988728

711648

1966611

Iraq

1181936

3208282

668592

1688882

Yemen Republic

630543

1381757

402180

402180

Nepal

641479

1356110

104598

242977

Djibouti

2377

8623

48387

204878

Sri Lanka

414087

841558

99620

202336

Oman

84071

139983

49184

89986

Germany

133437

411178

4800

13467

Kuwait

422954

891395

-

-

Other countries

240835

614624

313020

747318

All Countries

4816159

11473982

3422078

8220944

Imports of Cement from abroad

Cement imports in 2008-10 increased to 6.2 lakh tonnes from 2.12 lakh tonnes in 2008-09. Grey cement had a share of 61% in the total cement imports in 2007-08 followed by cement clinker (28%), other cements 10% and white cement (<1%). Main suppliers in 2007-08 were Pakistan (61%), Bangladesh (9%), UK (8%), China and Japan (6% each).

Country

2008-09

Qty (tns)

Value (Rs.000’)

2009-10

Qty (tns)

Value (Rs.000’)

Pakistan

1625

6761

379295

1212065

Morocco

-

-

18313

236629

Bangladesh

20216

61622

56768

218097

China

64929

230503

38771

141626

UK

85338

198245

46727

113625

Japan

30100

64123

37616

95017

France

909

22210

993

18734

Netherlands

601

25431

399

14690

UAE

3135

11686

3016

13212

Other countries

4918

33438

5952

38300

Unspecified

-

-

33624

79613

All Countries

211771

654019

621474

2181608

India’s Cement Trade

Cement has traditionally not been among India’s major traded products. During 2010, India was the 44th largest cement-trading nation in the world. However, increased focus on infrastructure development in recent years has led to a Splurge of construction activity in the country, resulting in higher cement imports and hence trade.

Trade in cement is also underway with the neighboring countries and countries in Africa and West Asia. L&T (now a part of Grasim), Gujarat Ambuja Cements Ltd and Jaiprakash Industries are the top exporters. The western region, due to its proximity to the coasts, accounts for 92.4 per cent of total exports, of which Gujarat holds a share of 76 per cent.

During the period from 2003 to 2010, India’s cement trade increased from US$ 4.1 million to US$ 44.2 million, a CAGR of 40.3%. The increase in trade was led by rise in imports, which increased, from US$ 0.3 million in 2001 to US$ 37.1 million in 2010, at a CAGR of 91.3%. India’s cement exports on the other hand increased at a CAGR of 9.9%, from US$ 3.7 million to US$ 7.2 million. China was India’s main source of cement imports, during 2010 with imports worth US$ 13.9 million followed by Italy and Taiwan with imports worth US$ 13.5 million and US$ 2.5 million, respectively. India’s top five import sources together accounted for close to 92% of India’s total cement imports during 2010.

India has an immense potential to tap cement markets of countries in the Middle East and South East Asia due to its strengths of location advantage, large-scale limestone and coal deposits, adequate cement capacity and production of worldclass quality of cement with the latest technology. However for this Indian cement industry will have to become cost competitive vis-à-vis China. Cement companies in India often complain that the entire gamut of direct and indirect taxes and the freight for transporting cement from hinterland to the port substantially increases the price of cement. Moreover the infrastructure facilities at port to handle bulk/bagged cement are poor leading to delays in exporting.

4. POLICIES & NORMS OF INDONESIAN CEMENT INDUSTRY

The cement industry in Indonesia is a highly regulated industry, to which access was once prohibited through a Negative List for Investment (DNI) before such prohibition

was finally lifted through deregulation by Presidential Decree No. 54/1993. The market is also full of rules which govern competition, such as market allocation and price fixing.

Cement is an industry that is considered as strategic in Indonesia. The cement industry has natural characteristics of the economies of scale. The whole process of cement production, from selecting the factory location, production stages, and especially the distribution, is heavily affected by operation scale considerations. To operate efficiently, the production and distribution have to be conducted massively. This fact is reflected from the concentration level of the cement market which reached 82% in 1993, and 61.68% in 1995, and in 1998 the biggest company in the industry controlled 28% of the industry’s capacity.

Considering the large significance being put on the distribution cost factor, the price of cement for consumers relies heavily on the mode of transportation used for distribution, since cement factories cannot be built on just any location. Consequently, distribution to consumers becomes a major problem in the cement industry. Regions which do not have a cement factory, such as Eastern Indonesia, have to pay a higher price compared to those which owns one.

The geographical conditions of such regions make it impossible to build a cement factory, so that cement has to transport from other islands which have cement factories. Regarding those reasoning the government conducted intervention on the market by introducing market allocation mechanism to each of the producers which are determined by negotiations in monthly meetings attended by representatives from the Ministry of Industry and Trade, Ministry of Communications and the Indonesian Cement Association (ASI). The quota is determined based on factories location, production capacity, and the condition of the cement market in the region. The purpose of this arrangement of distribution and quota was to assure cement supply and stock in every province at a relatively stable price. The cooperation between producers and the government in establishing regulations for distribution has created an agreement similar to a cartel, in which competition among producers are arranged.

Market allocation was first applied through Decree of the Minister of Trade No. 49/KP/II/1974, dated 6 February 1974, the material of which, among others,

1) Determine the cement supplier, whether for cement produced in the country or abroad,

2) Determine the distribution ratio for import quotas,

3) Determine the division of the marketing area groups for cement, whether imported or produced locally, into 7marketing areas;

4) The appointment of distributors by the Minister of Trade and the appointment of retail sellers by the distributor.

Furthermore, in order to maintain the stability of cement price in the country, the government has established Pegged Pricing System with Maximum Retail Price HET) system, the price is monitored at all times to ensure that the price of cement on the market is within reasonable range. The government originally set the price of Rp.1.650/bag on 17 February 1974. And by Ministry of Trade Decree No. 319/KP/IV/1979 later the HET system is changed into Local Price Standard (Harga Patokan Setempat-HPS) system, which even though provide guided price system to the retailer, it still does not provide sufficient binding power to retailer to adhere to such limit since it was only a guidance.

The basic idea of market intervention by government was to achieve public welfare in order to provide consumer with sufficient and affordable supply of commodities. Price fixing and market allocation policies were viewed as cross subsidy policies from consumer in producing region to non-producing region. Consumer protection idea as identifiable, where consumer rights to obtain goods in competitive price is focus of the government in establishing their cement policy.

However, in practice, such good faith is distorted by anti-competitive conduct by the Indonesian Cement Association (Asosiasi Semen Indonesia-ASI) who was operating producer cartel. Prior the revocation of HPS system on 1997 through Ministry of Industry and Trade Decree No.403/MPP/Kep/II/1997 ASI’s role toward the hike of cement price every year was substantial. Government could not refuse ASI’s proposal to increase HPS price, in addition that there must be short of cement supply very year.

Thus, the role of government practically has solely become the endorser of ASI’s policy. Moreover, market allocation has also promoted the establishment of barrier to entry to cement industry. This practice can be traced back from the early development of cement industry. Prior mid-70’s ASI has established comprehensive system of market allocation system for cement industry. Every year ASI allocates specific quota of production and lights to certain geographical market area to each of its member, that later helps them to establish regional market.

Quality Standards

The government has set standards for the quality of cement products as given in SNI 15-2049-2004, which is the standard for portland cement of the I, II, II,IV, and V types. Standards for other types of cement have also been set by the government.

POLICIES & NORMS OF INDIAN CEMENT INDUSTRY

Government Policies

Government policies have affected the growth of cement plants in India in various stages. Their control on cement for a long time and then partial decontrol and then total decontrol has contributed to the gradual opening up of the market for cement producers. The stages of growth of the cement industry can be best described in the following stages:

Price and Distribution Controls (1940-1981):

During the Second World War, cement was declared as an essential commodity under the Defense of India Rules and was brought under price and distribution controls which resulted in sluggish growth. The installed capacity reached only 27.9 MT by the year 1980-81.

Partial Decontrol (1982-1988):

In February 1982, partial decontrol was announced. Under this scheme, levy cement quota was fixed for the units and the balance could be sold in the open market. This resulted in extensive modernization and expansion drive, which can be seen from the increase in the installed capacity to 59MT in 1988-89 in comparison with the figure of a mere 27.9MT in 1980-81, an increase of almost 111%.

Total Decontrol (1989):

In the year 1989, total decontrol of the cement industry was announced. By decontrolling the cement industry, the government relaxed the forces of demand and supply. In the next two years, the industry enjoyed a boom in sales and profits. By 1992, the pace of overall economic liberalization had peaked; ironically, however, the economy slipped into recession taking the cement industry down with it. For 1992-93, the industry remained stagnant with no addition to existing capacity.

GOVERNING BODIES & ACTS

In India, the Department of Industrial Policy and Promotion (DIPP), under the Ministry of Commerce and Industry, is the nodal agency for the development of cement industries, that is, it is involved in monitoring their performance at regular intervals and suggesting suitable policy incentives, as per the requirement. The Department is responsible for formulation and implementation of promotional and developmental measures for growth of entire industrial sector in general and of some selected industries like cement, light engineering, leather, rubber, light machine tools, etc. in particular. It is involved in framing and administering overall industrial policy and foreign direct investment (FDI) policy as well as promoting FDI inflow into the country. It plays an active role in investment promotion through dissemination of information on investment climate and opportunities in India as well as by advising prospective investors about various policies and procedures.

The Department has been undertaking several measures like setting up of institutes/ councils for enhanced development of the industry. For instance, the National Council for Cement and Building Materials (NCB) has been constituted as an apex body dedicated to continuous research, technology development and transfer, education as well as scientific, technological and industrial services for the cement, related building materials and construction industries. It acts as a preferred technology partner to such sectors in the sustainable development of a better infrastructure and housing. NCB carries on its activities through its units located at Ballabhgarh, Hyderabad, Ahmedabad and Bhubaneswar. NCB's activities are channelised through its following six programme centres:

Cement Research and Independent Testing

Mining, Environment, Plant Engineering and Operation

Construction Development and Research

Industrial Information Services

Continuing Education Services

Quality Management, Standards and Calibration Services

Some of the rules and orders, administered by DIPP, relating to the cement industry are:-

Cement Control Order, 1967

Cement Cess Rule, 1993

Cement (Quality Control) Order,1995

Cement (Quality Control) Order, 2003

Government Controls

The prices that primarily control the price of cement are coal, power tariffs, railway, freight, royalty and cess on limestone. Interestingly, all of these prices are controlled by government. It is now encouraging the use of wastes such as slag and fly ash as a substitute to limestone concerning environmental issues which helps in reducing pollution.

Regulatory scenario

The Ministry of Mines regulates the mining sector, while the states own the minerals sector in their respective territories in India.

FDI of up to 100 per cent is allowed in the mining sector under the automatic route for cement production.

National Mineral Policy (NMP) 2008

The NMP aims to achieve the twin goals of large-scale prospecting with optimal mining and attracting investments with the latest technology. To implement comprehensive reforms stated in the NMP, the GoI has proposed a new legislation and amended the existing Mines and Minerals (Development and Regulation) Act. This legislation is expected to enhance the country’s regulatory environment by making it simple and transparent.

The impact of the Union Budget 2010–11

Excise duty has been increased by 2 per cent.

A budget allocation of US$ 36.16 billion has been made for India’s infrastructure development. Heightened focus on railways, housing, urban infrastructure and continued easy financing of the projects is expected to give impetus

to the construction sector.

Further, the additional deduction available for investment in long-term infrastructure bonds for individuals is expected to speed up the execution of infrastructure projects.

INDIA ADVANTAGE

India is the second-largest cement producer in the world, with an installed capacity of about 236 million tonnes (MT) in 2009–2010.

Between 2005–2006 and 2009-2010, domestic sales and realization of cement has been estimated to have grown at a CAGR of 18.4 per cent and 10.6 per cent, respectively.

The industry has witnessed continuous modernization and adoption of new technologies. Almost 93 per cent of the total capacity is based on eco friendly dry process technology.

The sector is expected to add an additional capacity of 92.3 MT by 2013. As a result, the industry will have a total installed capacity of 383.5 MT by March 2013. The cement industry employed 140,000 people in 2009.

Total FDI in the cement sector between April 2000 and August 2010 stood at US$ 1.9 billion.

FUTURE PROSPECTS OF THE CEMENT INDUSTRY

High spending on infrastructure projects and growing demand for housing units will fuel the Indian cement industry. Despite the gloomy outlook for the world economy, cement dispatches have witnessed impressive growth of 11.2% and 12.1% in November and December 2008 respectively.

INFRASTRUCTURE:

The Indian government has considered spending more than US$ 500 billion on infrastructure in the 11th Five Year Plan. This plan includes building road infrastructure, which will require 75 million metric tons of cement and power infrastructure that demands around 45 million metric tons of cement. Apart from this, railways, urban infrastructure, ports, airports, IT & ITES sector, organized retailing, shopping malls and multiplexes will be the main sectors driving the demand of cement in the country, says the report.

Besides this, the housing sector is also one of the key drivers for the cement industry and accounts for more than 40%of total cement demand. To further boost the housing demand in the country, many nationalized banks have reduced their interest rates on housing loans. As a result, the number of houses constructed is expected to increase from 3.6 million in 2009 to 6 million units by 2014. This concrete growth in the housing sector will lead to huge cement demand in the country

GOVERNMENT INITIATIVES

The Government of India has approved a package of fiscal incentives and other concessions for the North East Region, namely the North East Industrial and Investment Policy, 2007.

In a bid to attract foreign investors to its ambitious highways building programme, the Ministry of Road Transport plans to roll out projects worth US$ 120 billion by 2016

With an aim of accelerating and sustaining growth in the cement industry the Government has taken various measures in the Union budget 2011-12. The infrastructure sector has received an impetus in the form of improved funds and tax related incentives offered to attract investors for tapping the infrastructure opportunities around India. Introduction of tax free bonds, formation of infrastructure debt funds and formulating a comprehensive policy for developing public private partnership projects (PPPs) are some of the steps that will provide required stimulus for growth.

Measures taken in the Union Budget 2011-12 include:

Allocation of Rs 214,000 crore (US$ 46.5 billion) for infrastructure in 2011-12. This is an increase of 23.3 per cent over 2010-11

Government to come up with a policy for developing PPP projects

IIFCL to achieve cumulative disbursement target of Rs 20,000 crore (US$ 4.3 billion) by March 31, 2011 and Rs 25,000 crore (US$ 5.4 billion) by March 31, 2012

Under take out financing scheme, seven projects sanctioned with debt of Rs 1,500 crore (US$ 325.6 million). Another Rs 5,000 crore (US$ 1.1 billion) will be sanctioned during 2011-12

To boost infrastructure development, tax free bonds of Rs 30,000 crore (US$ 6.5 billion) proposed to be issued by Government undertakings during 2011-12

BUSINESS OPPORTUNITIES

The Indian cement industry has been on a high-growth trajectory led by buoyancy in sectors such as real estate, infrastructure and construction.

The GoI plans to increase its investment in infrastructure to US$ 1 trillion in the Twelfth Five Year Plan (2012–17) as compared with US$ 514 billion expected to be spent on infrastructure development under the Eleventh Five Year Plan (2007–2012).

Union budget 2010–11 plans a total outlay of US$ 6.4 billion on rural housing, roads and bridges.

Formal approval has been granted to 577 SEZ proposals and 363 have already been notified as SEZs, as of August 2010.

Infrastructure projects such as the dedicated freight corridors (DFC), upgraded and new airports and ports are expected to enhance the scale of economic activity, leading to a substantial increase in demand.

According to the Eleventh Five Year Plan (2007–2012), there is an increasing demand for housing in the country, especially in the economically weaker section (EWS)/low-income group (LIG).

The housing segment accounts for major proportion of the total domestic demand for cement in India.

Given the intense shortage of housing in the country, this segment has been the primary demand driver for the industry. The demand for office space in India is being driven by the influx of multinational companies and the growth of the services sector, especially the IT-BPO industry. Progressive liberalisation and easing of FDI norms in various sectors paved the way for growth in FDI, which led to a burgeoning demand for office space from MNCs and other foreign investors.

Growth in organized retailing and the entry of international retailers into India has fuelled the demand for good quality mall space.

Strong growth in tourism, including both business and leisure travel, has increased the construction of hotels in the country.

The real estate sector contributes 5 per cent to India’s GDP and is expected to reach a size of US$ 180 billion by 2020.

Upcoming industrial clusters and infrastructure development in emerging tier-II and tier-III cities are also likely to fuel demand in the sector.

The growing population and increased urbanization in the country has increased the need for more civil facilities.

POTENTIAL FOR EXPORT

Though India is the second-largest producer and consumer of cement in the world, there is a significant potential to increase the per capita consumption of cement in the country in comparison to Indonesia. The per capita consumption of cement in India is 143 kg, as compared with Indonesia of 172 kg.

Five Forces Model of Indian Cement Industry

Entry Barriers

High – Huge capital investments required present substantial barriers to entry and achieving economies of scale

Supplier's Power

Moderate – Cement players have to depend on the Railways for carriage outward and local coal companies for fuel, although diversification of freight options and fuel sources is diminishing the suppliers’ power

Buyer's Power

Low – Substantial market concentration among large players ensures low bargaining power of buyers

Substitute Threat

Low – Cement, practically, has no substitutes

Inter Firm Rivalry

Low – The Indian cement market is oligopolistic in nature, characterized by tacit collusion, where large players partially control supply for better price discipline



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