Indian cement industry Analysis Report
Industry
characteristics
Industry structure
The Indian cement industry comprises 140 large cement plants with an
installed capacity of 217.8 million tonnes, as of March 2009, and with more
than 365 mini cement plants constituting 11
million tonnes of effective capacity.
The industry can be broadly classified into three categories namely pan
India players, regional players and marginal players.
The first category consists of country majors - Holcim-controlled ACC
and Ambuja (40.7 mn tonnes) and Aditya Birla-controlled Grasim Industries,
Century textiles and UltraTech Cement (45.8 mn tonnes). CRISIL Research expects
the two players to attain an alternate leadership position as both are adding
capacity through greenfield/brownfield expansion.
The second category consists of players whose presence is restricted to
one region but with a stronghold in markets of their respective operations.
This segment includes players like Lafarge (East), India Cement (South), JP
Associates (North & Central), Shree Cement (North), Birla Corp, Binani
Cement, Dalmia Cement and Madras Cement etc. This segment controls 77 million
tonne capacity, which is approximately 37 per cent of the industry size.
Several players from this segment like Lafarge, India Cement and Binani Cement
are planning to set up capacities outside their present region(s) of operations
for expanding their reach and for tapping opportunities present in other
regions as well.
Third category consists of stand-alone players, which constitute
remaining 43 million tonne of the Indian cement industry. Players like CCI,
J&K Cement, Panyam Cement, Penna Cement etc fall in this category. These
players are local players who run the risk of being marginalised.
Cost elements
Four major costs associated with cement production:
1.
Power and fuel cost
2.
Raw material cost
3.
Selling expenses
4.
Other expenses
1. Power and fuel
Cement industry is power intensive with power and fuel cost constituting
approximately 30-35 per cent of cement cost of sales. Coal is used to fire the
kiln and also to generate power for grinding the clinker. Power requirement of
cement plants varies according to the heat treatment process. The wet process
requires 1,300-1,600 kcal/kg of clinker and 110-115 kWh of power to manufacture
1 tonne of cement, while the dry process requires only 750-950 kcal/kg of
clinker and 120-125 kWh of power. Even though dry process consumes more
electricity, wet process consumes much more fuel and is more energy intensive
than the dry process.
Table 2: Power & fuel requirement in cement manufacturing process
|
|
Energy
required in process
|
Power
required in kiln
|
|
|
(kcal per kg
of clinker)
|
(kwh per
tonne of cement)
|
|
Wet process
|
1,300-1,600
|
110-115
|
|
Dry process
|
750-950
|
120-125
|
|
Source:
Industry, CRISIL Research
|
|
|
While state electricity boards meet a large portion of power
requirement, more and more companies are currently opting for captive power
plants to reduce their cost and dependence on state electricity boards where
power cuts are frequent. During 2007-08, 81.8 million tonnes of cement was
produced by using Captive Power Plant, which works out to be 46.8 per cent of
total cement production.
The Indian cement industry primarily uses coal, pet coke and lignite for
its fuel requirement. Apart from depending on receipts against linked quota,
cement Industry has to depend on open market due to the allocation not being
sufficient to meet the coal requirement. Primary allocation of coal in India is to power and steel sector; cement
industry only gets close to 3.2 per cent of the total production in India
2. Raw material
Second major component in cement production is raw materials cost, which
primarily constitutes limestone cost. Raw material costs account for nearly
25-30 per cent of cost of sales. Limestone cannot be transported to long
distances; therefore, cement plants are generally located near limestone
quarries. They are clustered around ten deposits of cement, which are Satna, Gulbarga
Apart from limestone, cement industry uses other raw materials such as
fly ash, slag, gypsum etc.
3. Selling expenses
Cement manufacturing facilities are generally located far from the end
user market. They are located near limestone reserves as limestone is confined
to certain regions and is cost inefficient to be transported to longer
distances. As a result, cement has to travel a significant amount of distance
to reach its end users. Cement is a low value high volume commodity so
transporting accounts for a significant cost. It constitutes around 25-30 per
cent of cost of sales. There are three major modes of transportation used by
cement industry i.e. road, rail and sea with road and rail contributing more
than 90 per cent of the despatches in the country.
In order to control freight costs, companies strategically try to locate
plants close to raw material sources and end user segments by opting for split
location units. Therefore, companies set the clinker unit closer to limestone
reserves whereas they set grinding units near markets as transporting clinker
is cheaper than transporting cement. In addition, blending material like fly
ash or slag may not be available close to limestone reserves.
Rail is the preferred mode of transportation for long distance due to
its lower cost; however, availability of wagons and the distance to railhead
needs to be considered. Road transportation is beneficial for short distances
and bulk transportation as it minimises secondary handling and secondary
freight costs.
Sea mode is the cheapest source of transportation. However, only
coastal-based players can take advantage of this mode as they can transport
clinker and cement more economically within the country and to other regions as
well.
4. Other expenses
Other expenses include employee cost, administration expenses, repair
and maintenance charges etc. These account for around 10-15 per cent of the
cost of sales.
