Indian Streams Research Journal
ORIGINAL ARTICLE
ISSN:-2230-7850
SCENARIO OF INDIAN CEMENT SECTOR
ORIGINAL ARTICLE
P. Suseela and K. Maruthamuthu
Research Scholar, Department of Commerce, Periyar University, Salem.
Research Advisor and Assistant Professor, Department of Commerce,
Periyar University, Salem.
Abstract:-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. It is also
the second most consumed material on the planet. The Indian cement industry is the second largest
producer of cement in the world just behind China, but ahead of the United States and Japan. It is
consented 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.
Keywords:Scenario ,socioeconomic , global commodity, manufactured .
www.isrj.net
ORGANISATIONS
SCENARIO
OF DEPRESSED
OF INDIAN
CLASSES
CEMENT
INSECTOR
LATE COLONIAL TAMIL NADU
INTRODUCTION
Cement is a global commodity, manufactured at thousands of local plants. Because of its weight,
cement supply via land transportation is expensive, and generally limited to an area within 300 km of any
one plant site. The industry is consolidating globally, but large, international firms account for only 30% of
the worldwide market. In many developed countries, market growth is slow or nil whereas in developing
markets, growth rates are more rapid. China is the fastest growing market today. Because it is both global
and local, the cement industry faces a unique set of issues, which attract attention from communities near
the plant, at a national and an international level.
HISTORY
The indigenous Indian cement industry traces its history back to 1914, at a time when the market
was dominated by imports. In that first year the industry produced just 1000t of cement, but over just 10
years this figure increased to 0.26Mt in 1924. In the same 10-year bracket, India consumed a total of 2Mt of
cement, with around half imported. From a modern perspective, the need to expand the industry is clear.
However, the industry was fighting against poor public perception surrounding not only domestic Indian
cement, but cement itself. Many producers went out of business as a result of price-wars between Indian
producers who were aiming at a bigger slice of the future market. To end the uncertainty surrounding the
industry and to campaign for tariffs on imported cement, the Indian Cement Manufacturers' Association
(ICMA) was set up in 1925. This subsequently transformed into two connected groups. The modern
Cement Manufacturers' Association (CMA) was reformed in 1961.
Between 1925 and the early 1940s, the capacity of the Indian cement industry gradually increased
to 1.8Mt in 1942, with imports dwindling to just ~1000t/yr over the same period. However, all was not well
with the industry, which, like many industries across the world, suffered due to the Great Depression in the
United States and the run-up to the Second World War in Europe. To combat continued price wars,
Associated Cement Companies (ACC) was formed from 11 competing firms in 1936. In 1942 all of India's
cement capacity came under the control of Defence for India rules as part of the war effort. With up to 90%
of cement heading directly to defence purposes, the apparent private market shrank by a factor of 10. After
the conclusion of the Second World War, during which capacity reached 3.2Mt/yr, controls stayed in place.
From 1945 to 1956 the government regulated prices directly. However, it became increasingly obvious that
regulated prices from central government could not provide the cement that the country was demanding.
The controls were relaxed in steps, with a free market from 1989 onwards. The result of de-regulation was a
massive expansion of cement capacity, which has since only accelerated as the country has developed and
opened up its economy.
CURRENT POSITION IN CEMENT SECTOR
Domestic cement production showed a relatively muted growth of 4.7% YoY during July-Nov
2012, which can be mainly attributed to delayed monsoons impacting rural demand during Jul-Aug and
also delayed festive season impacting construction in Oct-Nov. Q-o-Q cement production declined by
8.2% during Q2 FY13 as compared to Q1 FY13, which is however a seasonal phenomenon due to onset of
monsoons. Contrary to expectations, cement demand did not witness any significant revival post monsoons
(Q3 FY13). The demand remained sluggish in November 2012 as the festive season (Durga Pooja and
Diwali) was delayed to November this year as compared to last year. This in turn delayed the pick-up in
construction activities due to migration of labour which typically happens during the festive season. AllIndia cement production declined by 0.2% YoY during the month of Nov 2012 and has not seen any
significant revival in the month of Dec 2012 as well. Going forward, with the end of monsoon and festive
season, the demand is expected to improve in the current quarter. As per our channel check, cement off take
has already seen improvement in some markets in Jan driven by seasonal pick-up in demand and emphasis
by government and private entities to meet their year-end targets. He pace of capacity addition has slowed
down in the cement industry since the peak addition of 50 million MT seen in FY10. This can be mainly
attributed to the fact that bulk of the cement capacity addition programme had been initiated in the period
FY06-FY09 and completed by FY10. Fresh capacity launches has slowed down subsequently and the
industry added 20 million MT in FY11 and 10 million MT in FY12. ICRA expects ~22 MTPA of grinding
capacity to be added in FY13 and 23 MTPA in FY14. However, the effective capacity additions in FY13
will be much lower since most of the projects will become operational only in H2 FY13. On an all-India
basis, the capacity utilisation levels are expected to remain at around 78% in FY13, which is marginally
higher than the 76% utilisation seen in FY12. However, there are significant variations in capacity
Indian Streams Research Journal | Volume 43 | Issue 512| June
| Jan 2014
2014
2
ORGANISATIONS
SCENARIO
OF DEPRESSED
OF INDIAN
CLASSES
CEMENT
INSECTOR
LATE COLONIAL TAMIL NADU
utilisation across regions. The southern region will be worst affected with capacity utilisation being around
60% in this region in FY13. About 47% of the new capacities that will be added in FY13 will be in Southern
region. Northern, eastern and western regions will be much better placed with utilisation of over 80% in
North and West and over 75% in East in FY13.
Cement prices came under pressure- a seasonal phenomenon- across markets (barring South) in
the second quarter due to monsoons, however the prices in Q2 FY13 were much higher than those in the
corresponding period in previous year, which was marked by poor realizations and weak demand . While
cement prices traditionally recover in the third quarter, this was not the case this year. The prices continued
to weaken in November and December 2012 due to weak demand. Cement prices declined by 5-15% in
most markets across India (except South) between July and Dec 2012- average wholesale cement prices
declined by Rs. 26/bag in Ahmedabad, Rs. 18 per bag in Mumbai, Rs. 30 per bag in Delhi Rs. 43 per bag in
Chandigarh and Rs. 44 /bag in Kolkata markets. In South (barring Andhra Pradesh) prices have largely been
either steady or have declined marginally by 1-2%. In AP, the prices came under severe pressure and
declined from Rs. 283 per bag in July 2012 to Rs. 238 per bag in Sept 2012, a decline of Rs. 45 per bag
mainly due to weak demand and disruption of pricing discipline. Though prices in AP recovered marginally
in Oct and Nov 2012 and increased by Rs. 33/bag during Oct-Nov 2012, they have again declined by Rs.
12/bag in Dec 2012. The upward trend in prices was arrested by Cyclone Nilam which impacted
construction and other developmental activities in coastal areas of the state. It is important to note that
though the prices have declined across markets post Aug 2012, the current average price realization are 515% higher across most markets on Y-o-Y basis. Going forward, cement prices are expected to improve in
Q4 FY13 driven by pick-up in demand. The prices have already shown some signs of recovery in Jan with
the arrival of busy season and have increased in Delhi, Ahmedabad and Kolkota and other markets. On the
cost side, the cement industry was affected by increase in diesel prices in the month of September 2012. The
diesel prices were increased by Rs. 5/litre in Sept 2012 which increased the cost by Rs. 3 per bag for cement
companies. The weak demand scenario made it difficult for most players to fully pass on this cost.
However, cement companies using imported coal have seen moderation in their power and fuel cost as
prices of international coal have been declining from Jan 2012.
Decline in prices in Q2 FY13 coupled with lower volume offtake owing to weak demand from
construction segment due to monsoons has resulted in QoQ decline in revenues for most cement companies
in ICRA sample* (except Madras Cements Limited). The operating profitability also declined sequentially
for all cement companies in ICRA sample (except JK Lakshmi Cement Limited and Madras Cements
Limited). However, on YOY basis, the performance of cement companies was much better driven by higher
average realizations in Q2 FY13 as compared to the corresponding period in previous year, which was
marked by poor realizations and demand scenario.
CONCLUSION
The Indian cement industry is large, growing and, with consumption of just 185kg/capita/yr in
2011-2013 (compared to global average of ~300kg/capita/yr) the country itself has the capacity to demand
significantly more cement as it develops. However, the industry is at a tricky point in its development.
Capacity is way ahead of actual consumption. However, cement producers are keen to maintain their
market share and so expand to secure future demand. Producers in this situation should bear in mind the
Indian cement industry of the early 20th Century, when companies expanded, lowered prices and, in many
cases, went out of business. Some have cautioned against rapid capacity addition in the coming years. It is
foreseeable that the Indian cement industry will see consolidation over the coming years. Producers that
can differentiate their cement from others or can make savings on production costs by, for example, using
alternative fuels, will be able to take advantage of increasing demand while remaining ahead of their
competitors.
REFERENCES
1.Cement Manufacturers' Association website, 'Historical Development,’
http://www.cmaindia.org/portal/static/DynamicHistory.aspx
2. 'Global Cement Directory 2013,' PRo Publications International Ltd., Epsom, UK, November 2012.
3. Singh, S.P. 'Assessment of competition in cement industry of India,' Competition Commission of India &
Vinod Gupta School of Management, IIT, Kharagpur, 2012,
http://cci.gov.in/images/media/ResearchReports/Assessment%20of%20Competition%20in%20Cement
%20Industry%20in%20India.pdf.
4. World Business Council for Sustainable Development, Cement Sustainability Initiative website, 'Global
Indian Streams Research Journal | Volume 43 | Issue 512| June
| Jan 2014
2014
3
ORGANISATIONS
SCENARIO
OF DEPRESSED
OF INDIAN
CLASSES
CEMENT
INSECTOR
LATE COLONIAL TAMIL NADU
cement database on CO and energy information', http://wbcsdcement.org/index.php?Itemid=74.
5. Back issues of 'Global Cement Magazine,' PRo Pubications International Ltd., Epsom, UK, January
2012 - January 2013.
6. Global Cement website, 'Cement industry in India,' http://www.ibef.org/industry/cement-india.aspx,
Updated November 2012.
P. Suseela
Research Scholar, Department of Commerce, Periyar University, Salem.
Indian Streams Research Journal | Volume 43 | Issue 512| June
| Jan 2014
2014
4