Cement: Analysis
Indian Cement Industry
In Global Perspective
Major policy and fiscal initiatives initiated to catalyze infrastructure, housing
and industrial development continue to spur the demand for cement
Sadagopan Seshadri
Chief - Content Development, CE - Infrastructure - Environment
C
ement is vital to the construction sector and all infrastructure
projects. The cement industry
occupies an important place in the Indian
economy because of its strong linkages
with other sectors such as construction, transportation, coal and power. The
sector notably plays a critical role in the
economic growth of the country in its
journey towards an inclusive and decidedly conclusive growth. The con-
128
struction sector alone constitutes 7 per
cent of the country's gross domestic
product (GDP).
Given the right drivers, no doubt
India has become the second largest
producer of quality cement in the
world. The cement industry in India
comprises 183 large cement plants
and over 365 mini cement plants. Currently, there are 40 players in the industry across the country.
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Trend & 'Demand-Supply' Match
The demand for cement, being a
derived one, depends mainly on the
industrial activities, real estate business,
construction activities and investment
in the infrastructure sector. The cement
industry in India continues to experience a boom on account of overall
growth in the economy.
Demand pattern for cement in India
is cyclical; barring short-term disruptions, it grows largely in tandem with
economic growth. The growth in demand
driven by GDP has been ably catered on
the supply side by growth in production
to fill up the consumption growth on all
sectors of the economy. (See figures 1,
2&3)
Cement: Analysis
Product Offerings
Trend in GDP and Growth in Cement Demand
16%
12%
8%
4%
2013E
2012E
2011E
2010
2009
Source: Ambit Capital, Aranca Research
The cement industry of India is
expected to add 30-40 million tonnes
per annum (MTPA) of capacity in 2013.
The industry has a current capacity of
324 MTPA and operates at 75-80 per
cent utilization.
"It is anticipated that the cement
industry players will continue to increase their annual cement output in coming years, and the country's cement
production will grow at a compound
annual growth rate (CAGR) of around
12 per cent during 2011-12 - 2013-14 to
reach 303 million metric tonne (MMT),
according to a report titled 'Indian
Cement Industry Forecast to 2012', by
research firm RNCOS.
There have been strong demand
drivers even in the near term in the following sectors of economy.
Figure 1 Growth in Demand
1. Housing growth
Figure 2 Supply: Growth in Cement Production
Source: Department of Industrial Policy and Promotion, Aranca Research
Notes: MT - Million Tonnes, E - estimate
The Housing segment accounts for
2008
2007
2006
2005
2004
Cement demand growth YoY (%)
GDP growth YoY (%)
Market Size & Growth Areas
2003
2001
2002
2000
1999
1998
1997
1996
-4%
1995
0%
1994
The Indian cement industry is involved in production of several types of
cement such as Ordinary Portland Cement
(OPC), Portland Pozzolana Cement
(PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement, Rapid
Hardening Portland Cement, Sulphate
Resisting Portland Cement, White Cement, etc. They are produced strictly as
per the Bureau of Indian Standards
(BIS) specifications, and their quality is
comparable to the best in the world.
Production of Cement (MT)
300
247
250
228
207
200
156
168
182
150
100
50
0
FY07
FY07
FY09
FY10
FY11
FY12E
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129
Cement: Analysis
All India
265.9
CAGR 10%
236.3
210.2
196.4
163.4
FY08
177.5
FY09
FY10
FY11F
FY12F
FY13F
Figure 3: Growth in Domestic consumption of cement (mtpa)
Source: CMA, Edelweiss, Aranca Research; Note: MTPA - Million Tonnes Per Annum
a major portion of the total domestic
demand for cement in India. Between
2010 and 2014, demand for housing
units is estimated to be 4.3 million, leading to a higher demand for cement for
homebuilding. Growing urbanisation,
an increasing number of households
and higher employment are primarily
driving the demand for housing.
Initiatives by the government are
expected to provide an impetus to construction activity in rural and semi urban
areas through large infrastructure and
housing development projects.
2. Infrastructure growth
The government is strongly focused
on infrastructure development to boost
economic growth. It plans to increase
investment in infrastructure to USD1
trillion in the 12 th Five Year Plan (201217), compared with USD514 billion
under the 11 th Five Year Plan (2007-12).
Infrastructure projects such as Dedicated Freight Corridors as well as new
and upgraded airports, and ports are
expected to further drive construction
activity. The government in-tends to
expand the capacity of the railways and
the facilities for handling and storage to
ease the transportation of cement and
reduce transportation costs.
3. Commercial real estate growth
The demand for commercial real
estate segments, comprising retail
space, office space and hotels, as well
as civic facilities, including hospitals,
multiplexes and schools, has been rising due to the growth in economy. The
demand for office space in India is
being driven by the increasing number
of multinational companies and the
growth of the services sector. Strong
growth in tourism, including both business and leisure travel, has boosted
the construction of hotels throughout
the country.
Estimated demand by real estate
segment between 2010 and 2014:
Office (240 million sq ft), Retail (55 million sq ft), Hospitality (78 million room
nights)
Main Players
Although the Indian cement industry has some multinational cement
giants, like Holcim and Lafarge, which
have interests such as ACC, Ambuja
Cement and Lafarge Birla Cement, the
Indian cement industry is broadly homegrown. Ultratech Cement, the country's
largest firm in terms of cement capacity, holds around 22% of the do-mestic
market, with ACC (50%-owned by Holcim)
GDP (PPP) (2011)
GDP/capita (2011 est.)
Population (July 2012)
Area
Integrated plants
Integrated capacity
Grinding plants
Grinding capacity
US$4.42bn
US$3700
1205.1m
3,287,263km
146
302Mt/yr
55
63.5Mt/yr
TOTAL CAPACITY
365.5Mt/yr
Table 1: Summary Statistics - India &
The Cement Industry
All India
Industrial
4%
10.0%
13%
Commercial
7.5%
Ambuja Cement
ACC
Residential
63%
Infrastructure
20%
15.0%
66.1%
1.4%
Ultratech Cement
Jaypee Cement
Others
Figure 4 The 'Consumption Areas' Spread
130
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Figure 5: Market share by installed capacity (2011)
Cement: Analysis
and Ambuja (50%-owned by Holcim)
having 15% and 13% shares respectively.
Many of the remaining dozen top
players are Indian and are (in order of
diminishing market share); Jaiprakash
Associates (10%), The India Cements
Ltd (7%), Shree Cements (6%), Century
Textiles and Industries (5%), Madras
Cements (5%), Lafarge (5%), Birla Cement (4%) and Binani Cement (4%).
Between them, the top 12 cement
firms have around 70% of the domestic
market. Around 100 smaller players
produce and grind cement on a wide
range of scales but are often confined
to small areas.
An understanding of what factors
influenced in the making of the composition of this industry as it is, essential to
make prudent decisions on what are
interventions needed and whether these
issues will be instrumental in steering
the Indian Cement Industry towards a
consolidation over the next years. Most
answers may lie in,
'What does a new entrant experience in this sector? ',
Which can be summarily put as:
-
-
-
-
Entry barriers are high as huge capital investments required present
substantial barriers to entry and
achieving economies of scale.
Buyers' power - Substantial market
concentration among large players
ensures low bargaining power of
buyers.
Substitutes threat - Cement, as of
now has practically no substitutes
and this is positive.
Players' rivalry threat - The Indian
cement market is oligopolistic in
nature, characterised by tacit collusion, where large players partially
control supply for better price discipline. There have been off late CCI
trying though to intervene to set this
right. But as of now cement firms
rule the roost.
Government - The Right Initiatives
India would require overall cement
capacity of around 480 MT. The indus-
132
Some of the initiatives taken by the
Government to further promote the
sector are as under:
Some of the major investments in the
sector are as follows:
-
Ÿ Excise duty rationalised for packaged cement, whether manufactured
by mini cement plants or others.
Ÿ Packaged cement, whether manufactured by mini-cement plants or
others, attracts differential excise
duty depending on the retail sale
price per bag. It is proposed to prescribe a unified rate of 12 per cent + `
120 (US$ 2.16) PMT for non-mini
cement plants and 6 per cent + ` 120
(US$ 2.16) PMT for mini-cement
plants. It is proposed to charge this
duty on the retail sale price less
abatement of 30 per cent
Ÿ The Indian construction industry
has shown significant development
over the years with eminent and efficient engineers at the helm and is
among the best in the world, said
Anand Sundaresan, Managing Director, Schwing Stetter (India) while inaugurating a conference on 'Latest
Trends in Construction Industry'
Ÿ The private sector is expected to
contribute 44 per cent of the total projected spend of US$ 100 billion on
roads and highways over the Twelfth
Five Year Plan (2012-17) period.
try will have to add another 150 MT of
capacity during the period, according
to the latest report from the working
group on the industry for the 12th Five
Year Plan (2012-17).
The major policy and fiscal initiatives are expected to catalyze infrastructure and industrial development in
the region, spurring the demand for
cement.
Investments: Confidence Makers
The cement and gypsum products
sector has attracted foreign direct
investments (FDI) worth ` 11,779.04
crore (US$ 2.12 billion) between April
2000 to February 2013, according to
the data published by the Department
of Industrial Policy and Promotion (DIPP).
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-
-
-
-
Barings Private Equity Asia has picked
up a 14 per cent minority stake in
the Indian unit of cement major
Lafarge, for ` 1,427 crore (US$
257.11 million)
Sinoma International Engineering
(Hong Kong), a part of the Chinese
state-run National Materials Group
Corp, has entered the Indian
cement equipment industry by acquiring a majority stake in Chennaibased equipment manufacturer
LNV Technology
Dalmia Cement plans to invest
` 1,800 crore (US$ 324.32 million)
to increase the company's cement
manufacturing capacity over the
next two years. The company also
plans to set up a 2.5 million tonne
(MT) greenfield unit in Karnataka
Ambuja Cements plans to invest
` 2,000 crore (US$ 360.33 million)
to enhance its cement capacities in
Rajasthan and northern region. The
proposed project at Rajasthan
would add five MT capacity to the
total cement production of India
Reliance Cement Company (RCC),
a subsidiary of Reliance Infrastructure Ltd, has commenced production of cement from its first manufacturing unit at Butibori, Nagpur in
Maharashtra
Holcim, the Switzerland-based cement major, says India is among the
robust of markets in Asia. It has said so
at a time when the country's cement
sector faces rising costs and poorerthan expected demand, despite this
being the peak construction period.
The company operates in India
through group companies ACC and
Ambuja Cements. It has said its outlook for Asia continues to be positive
and that India, Indonesia and Philippines rank among the most promising
growth markets. Its latest annual report
says prospects for the construction
industry are very good in these countries, given the high demand for infra-
Cement: Analysis
structure expansion projects, as well
as the need for low-cost housing.
Holcim is expanding its production
capacity in India. ACC plans to raise
this from the existing 30 million tonnes
per annum (mtpa) to 35 mtpa, in a
phased manner till 2015. As part of this
project, a new plant at Jamul in the
state of Chhattigarh is under process.
Also at Jamul, grinding capacity is
being replaced. Part of the clinker produced in Jamul is earmarked for the
expanded Sindri grinding plant (in
Jharkhand) and for the new grinding
plant in Kharagpur (West Bengal).
ACC and Ambuja have a combined
capacity of 57 mtpa, around 16 per
cent of India's overall cement making
capacity of 360 mtpa.
Lafarge plans to expand its India
operations across the country despite
an anticipated slowdown, the French
major's chairman and CEO Bruno
Lafont said citing a new study that says
India will become the world's thirdlargest construction market by 2025, to
support his buoyancy. The study by
Global Construction Perspectives and
Oxford Economics expects India to
add 11.5 million homes a year to become a $1-trillion, or about 59 lakh crore,
a year market, even though it has cut
India's short-term growth prospects.
"The attractive growth of the construction industry will be higher than the
short term economic growth. India is
one of our focus countries, as we want to
expand our operations from the North
"The attractive growth of the
construction industry will be
higher than the short term
economic growth. India is
one of our focus countries,
as we want to expand our
operations from the North
East to the rest of the
country,"
Industry trends; Healthy & Wise
There has been an increasing presence of small and mid-size cement
players. Marked observation is of new
entrants and existing marginal ones'
capacity additions,
-
-
Presence of small and mid-size cement players across regions is increasing, which helps to diminish market concentration of industry leaders
Small and mid-size players have
been constantly increasing their installed capacity to cater to increasing cement demand
Moreover, there is an Increasing sale
of blended cement, which was not so
earlier.
Bruno Lafont
CEO, Lafarge
East to the rest of the country," Lafont
told ET.
Lafarge is present in 65 countries
and Lafont says there is no easy country to work in. "The path that the Indian
authorities is taking is working; we are
happy in India," he says, but adds that
Lafarge would like to see a "simplification of the framework of regulations so
projects can move faster."
Lafarge, which has opened a laboratory in India to promote innovations that
are close to the market, will focus on
India's booming Tier 2 cities, Lafont says.
-
The proportionate sales of blended
varieties of cement - Portland Pozzolana Cement (PPC) and Portland
Blast Furnace Slag Cement (PBFC)
- has risen over the years
During 2011, blended cement
accounted for 75 per cent of total
cement production in the country
The third factor that has emerged is
the serious attempt on Cost reduction
through the use of alternate fuels
-
-
Major cement manufacturers in India
are increasingly using alternate fuels,
such as even bio-energy to fire cement kilns
This is not only helping to reduce
production costs of cement companies, but is also proving effective
in reducing emissions
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133
Cement: Analysis
Company/Plant
Strategy
Benefits
Madras Cement's
Alathiyur plant
Use bioenergy through
burning of coffee hust
and cashew nut shells
Annual cost savings of USD 1.7 million
India Cements Ltd's
Dalavoi plant
Use Low Sulphur Heavy
Stock (LSHS) sludge
as alternate fuel
Annual savings of USD6500 approx.
UltraTech's Gujarat
Cement Works
Use tyre chips and
rubber dust as
alternate fuel
Reduction of about 30,000 tonnes of
carbon emissions annually
Lafarge's Arasmeta
plant
Substitute 10% of
coal used in kilns
with rice husk
Higher energy savings and
lower carbon emissions
Figure 6 : Illustration of Successful use of alternate fuels in cement production
An illustration of successful implementation of alternate fuel usage in
cement production to reduce production costs is shown in Figure 6.
The Sustainability Score
Energy efficiency: The Indian cement
industry is one of the most energy efficient, according to the World Business
Council for Sustainable Development's
(WBCSD) Cement Sustainability Initiative's (CSI) Getting the Numbers Right
(GNR) data programme.7
Despite the large capacity of Indian
cement industry, the country performed extremely well in terms of specific
energy consumption per tonne of clinker produced, with an average 3130
MJ/t across the 50% of cement capac-
ity that the GNR programme received
data on (reference 2010 the most
recent year for which data is available).
Brazil and China, which also have rapidly-developing large cement industries, performed slightly less well.( See
Figure 7)
For all the three countries, it is the
recent expansion of the industry that
provides this thermal efficiency, an obvious consequence of the newly installed
modern plants being more efficient
than older ones. The comparison evidently is with the EU27 group of countries (and the USA to a greater extent),
which have older units.
In the Indian case, efficiency achievement and its sustenance in the new
capacity additions is attributable to two
1000
Specific energy consumption (MJ/t clinker)
Specific energy consumption (MJ/t clinker)
4500
4000
3500
3000
2500
2000
1500
1000
500
0
900
800
700
600
500
400
300
200
100
0
USA
Germany
EU27
Brazil
WORLD
China
Figure 7 Energy Efficiency
134
complementing factors. Firstly, the fact
that (expensive foreign) coal, the dominant fuel for the Indian cement industry
acts as a strong driver towards efficiency. This is complemented by a skilled
knowledgeable engineering force that
maximizes operating 'equipment & systems' efficiency levels. Coal is a reliable
and stable kiln fuel that has helped
Indian kilns to be very finely tuned for
better efficiency.
GHG emissions: in the matter of
CO2 emissions per tonne of clinker,
India performs not that well, as CO2
released is 837 kg/t of clinker though
this is close to the global average. In
this respect cement, industries will have
to switch to alternate fuels of which Germany is one of the best examples.
Indian cement industry too has entered
this arena (See fig. 8) but this is an
aspect that has to be fully customized
so that a proper balance in bet-ween
carbon footprint and efficiency is maintained.
Finally, 'Low Carbon Technology
Roadmap' for the Indian cement industry is already under launch. The roadmap will outline a possible transition
path for the cement industry to reduce
its direct emissions by 18 per cent by
2050. Indian cement majors ACC Ltd,
Shree Cement and Ultratech have
signed a cooperation pact to support
low-carbon investments in India. The
pact was signed in Geneva with member companies of the World Business
Council (WBC) for Sustainable Devel-
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India
China
USA
Figure 8 GHG Emissions
India
Brazil
WORLD
EU27
Germany
Cement: Analysis
opment's Cement Sustainability Initiative and International Finance Corporation (IFC).
All India
82
78
77
FY11F
FY12F
Additional capacity requirementWhat to Expect?
An improved capacity utilization notwithstanding the surge in continued
demand is pushing up increasingly the
need for installed capacity addition.
Installed capacity increased at a
CAGR of 13 .6 per cent over FY06-11
while production witnessed an increase
of 9.1 per cent during this period.
Total capacity of 331 MT is estimated to have been created in FY12.
Considering the sharp growth in
construction, infrastructure and real es-
FY13F
Figure 9 : Forecasted capacity
utilization levels of cement players (%)
tate in the Indian economy, It is logical
that the 12 th Five Year Plan estimates
additional capacity requirement will
surely reach 139.7 MT by FY17
What lies 'Ahead'?
By virtue of Cement's demand being
Additional capacity creation as per the 12th Five Year Plan
38.7
35.5
30.2
25.3
12.9
13.4
FY12
FY13
FY14
FY15
FY16
References
FY17
1.
2.
3.
4.
Figure 10: Capacity Creation
100
450
primarily based on the pace of activities
in the business, financial, real estate and
infrastructure sectors of the economy,
all of which are racing ahead, cement
demand will continue to demonstrate
healthy growth trend. Cement being
the most preferred building material
worldwide for all construction works
from housing and industrial construction to the creation of infrastructures
like ports, roads, power plants, etc. the
industry will expand by leaps and
bounds. As for the Indian cement industry, it is globally competitive with the
industry having demonstrated healthy
trends in terms of cost control and a
continuous technology upgradation.
While India is experiencing growth
in all areas, the industry and the cement
market is moving ahead even in the
wake of world-wide economic recession. The domestic environment too is
spurred up by initiatives taken by the
Government of India to various infrastructure projects, road network and
housing activities with a huge 1.15 lakh
crore investment basket. The right
moves by the government should be a
big compliment to an industry which
too has done a lot of good work on
capacity addition, utilization, efficiency
and environmental measures.
95
5.
90
85
80
350
75
70
300
65
60
250
Capacity utilisation rate (%)
Amount of Cement (Mt)
400
6.
7.
55
Figure 11 Capacity v/s Capacity Utilization
136
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2016
2015
2014
2013
2012
50
2011
200
8.
ACC Ltd. http://www.acclimited.com/
World Bank Indicators website.
United States Geological Survey.
Cement Manufacturers' Association
website: 'http://www.cmaindia.org
/portal/static/DynamicHistory.aspx
'Global Cement Directory 2013,' PRo
Publications International Ltd., Epsom,
UK, November 2012. Global Cement
http://www.globalcement .com/
Singh, S.P. 'Assessment of competition in cement industry of India,' Competition Commission of India & Vinod
Gupta School of Management, IIT,
Kharagpur,.
World Business Council for Sustainable Development, Cement Sustainability Initiative.
Global Cement website, 'Cement
industry in India,' http://www.ibef.org/
industry/cement-india.aspx, Updated
November 2012.