In the most general sense of the word, cement is a binder, a substance which sets and hardens independently, and can bind other materials together. Cement used in construction is characterised as hydraulic or non-hydraulic. Hydraulic cements (eg portland cement) harden because of hydrating chemical reactions that occur independently of the admixture’s water content; they can harden even underwater or when constantly exposed to wet weather.
A chemical reaction results when the anhydrous cement powder is mixed with water. This process produces hydrates that are not water-soluble.
On the other hand, non-hydraulic cements (eg lime and gypsum plaster) must be kept dry in order to gain strength.
The most important use of cement is in the production of mortar and concrete – the bonding of natural or artificial aggregates to form a strong building material which is durable in the face of normal environmental effects. This requires the use of hydraulic or portland cement; thus this is the most common type of cement produced in the world, and especially in India.
For the past 18 years, China consistently has produced more cement than any other country in the world. However, China’s cement exports peaked in 1994 with 11 million tonnes shipped out, and has been in steady decline ever since. Only 5.18 million tonnes were exported out of China in 2002. Chinese cement is perceived to be pricing itself out of the market, as countries like Thailand sell the same for a much lower price.
India is the world’s second largest producer of cement with total capacity of 224 mt as on 30 April 2010, according to the Cement Manufacturers Association. During May 2010, cement production touched 14.50 million tonnes, as compared to 13.28 mt in May 2009. The quantity of cement despatched was 14.21 mt in May 2010, over 13.06 mt in the corresponding month of 2009.
Moreover, the government’s continued thrust on infrastructure will help the key building material to maintain an annual growth of 9-10 per cent in 2010, according to India’s oldest cement company, ACC.
Established in 1936, ACC has been a pioneer and trend-setter in cement and concrete technology. But today, there are as many as 70 companies in the field. The Indian cement industry comprises 130 large cement plants and 365 mini-cement plants.
In January 2010, rating agency Fitch predicted that the country will add about 50 million tonnes cement capacity in 2010, taking the total to around 300 million tonnes.
Further, speaking at the Green Cementech 2010, a seminar jointly organised by the Confederation of Indian Industry (CII) and the Cement Manufacturers’ Association in Hyderabad in May 2010, G Jayaraman, executive president, Birla Corporation Ltd (a major producer) said that in 2009, 40 mt of capacity was added; and he expects a similar trend to follow this year.
Cement and gypsum products have received cumulative foreign direct investment (FDI) of $1708.69 million between April 2000 and March 2010, according to the Department of Industrial Policy and Promotion (DIPP).
The Indian cement industry is growing at 9-11 per cent for the past few years with a capacity of 260 million tonne while China, the world’s largest market, is growing at 14 per cent. The global market is expected to grow at 5 per cent and the Brazil market at 4 per cent.
Not surprisingly given the government’s thrust on infrastructure, all the major manufacturers are scaling up capacity. The Indian cement industry is expected to see an additional 60 million tonnes of new capacity by the end of the current fiscal year.
Madras Cements Ltd is planning to invest $178.4 million to increase the manufacturing capacity of its Ariyalur plant in Tamil Nadu to 4.5 mt from 2 mt by April 2011. The Surya Group plans to invest $873.3 million in a new 5 million mt cement plan to be set up in Gujarat.
My Home Industries Ltd (MHI), a 50:50 joint venture between the Hyderabad-based My Home Group and Ireland’s building material major CRH Plc, plans to scale up its cement production capacity from the existing 5 million tonnes per annum to 15 mtpa by 2016. The company would undertake this capacity expansion at a cost of $1 billion.
Shree Cement plans to invest $97.13 million this year to set up a 1.5 million MT clinker and grinding unit in Rajasthan. Moreover, in June 2010, Shree Cement signed a memorandum of understanding (MoU) with the Karnataka government to invest $423.6 million for setting up a cement unit and a power plant. Of this, $317.7 million will be used to set up a cement manufacturing unit with an annual capacity of 3 mtpa while the balance will be for a captive 100 mw power plant.
Jaiprakash Associates plans to invest $640 million to increase its cement capacity. Swiss cement company Holcim plans to invest $1 billion in setting up two or three greenfield manufacturing plants in the country in the next five years to serve the rising domestic demand. Holcim is present in the country through ACC and Ambuja Cements, and holds around 46 per cent stake in each company. While ACC operates 16 cement plants, Ambuja Cements controls five plants in India.
The Aditya Birla group is the largest cement-making group by capacity in the country and controls Grasim Industries and Ultratech Cement.
Mergers and acquisitions are also going on apace. KKR and Dalmia Cement signed a deal worth $159.57 million in May 2010. French cement company Vicat acquired a 51 per cent stake in Bharathi Cement Co Ltd, promoted by Y S Jagan Mohan Reddy, Member of Parliament, to tap the southern markets, which represent 40 per cent of the total Indian cement market.
The cement industry is pushing for increased use of cement in highway and road construction. The Ministry of Road Transport and Highways plans to invest $354 billion in road infrastructure by 2012. Housing, infrastructure projects and the nascent trend of concrete roads would continue to accelerate the consumption of cement.
Increased infrastructure spending has been a key to the growth of the industry. In the union budget for 2010-11, $37.4 billion has been provided for infrastructure development. The government has also increased budgetary allocation for roads by 13 per cent to $4.3 billion.
In fact, cement makers in North India are switching from Portland pozzolana to ordinary Portland to cash in on the rise in infrastructure projects. Ordinary Portland is used in making concrete for structures that require high compressive strength, such as roads, bridges and dams while Portland pozzolana is used in real estate projects.
Challenging times ahead
However, a capacity glut, slowing demand and low product prices could likely together affect cement companies’ growth, say industry executives. The increased production would keep prices down, eroding margins.
UltraTech Cement, India’s second largest cement maker by capacity, has seen its fiscal third quarter net profit fall by 18 per cent, while Delhi-based JK Lakshmi Cement’s net profit fell 19 per cent in the same period.
Ambuja Cements marketing head Ajay Kapur said: “Demand has gone down not only in the south but also in western India. On the exports front, companies that shipped cement to the Middle East have been hit after the recent financial crash in Dubai stopped construction activity. In India, the political instability in And
hra Pradesh led to a squeeze on real estate projects which also spread to neighbouring states.”
Cement being a zone-specific commodity is typically sold in markets that are close to the manufacturing plants. The industry is also cyclical and depends largely on government efforts on infrastructure. “Prices had come down by almost Rs25-30 per bag on an average in many regions. They had dropped to Rs130 at one time in Hyderabad,” said an analyst.
“The sharp price drop eroded the third quarter profitability for most players,” he added. Companies such as Madras Cements, Dalmia Cements, Shree Cements, ACC, Ambuja Cements and others also posted negative results.
Shree Cement managing director H M Bangur said: “We are expecting lower profit in the third quarter compared to the first two quarters. Sharp drop in prices had hit the industry last quarter.” Dalmia Cement, India’s fourth largest manufacturer by capacity, said profitability of most companies was hit in the third quarter because of oversupply.
Industry players say recovery in the residential real estate market, low-cost and affordable projects would improve demand for cement. The Indian cement industry is growing at 7-8 per cent a year, making it the second-fastest after China.
According to the Cement Manufacturers Association, India’s cement manufacturers would add 110 million tonne to current production capacities, at an investment of about Rs50,000 crore over the next three years.
Rising input costs, non-availability of rail wagons and the imminent excess supply pose challenges for the cement industry for the current financial year, but the government’s continued thrust on infrastructure will help the key building material to maintain an annual growth of 9-10 per cent in 2010, says ACC.
The prices of major inputs such as coal, slag, gypsum, fly ash and petroleum products have started rising and are likely to harden in 2010, pushing up manufacturing and distribution costs. In addition, the availability of raw materials continues to pose challenges. Also, the supply of railway wagons is likely to worsen during the course of the current year, affecting cement despatches to some markets, ACC said in a report ahead of its 74th annual general meeting earlier this year.
“The profitability of cement firms would come down in 2010 from the high seen in mid-2009 as coal and freight costs have risen,” Rupesh Sankhe, cement analyst at Angel Securities, said. However, the demand for cement in the construction sector will grow steadily in the next few years, said ACC.
The sales figures of cement companies for March corroborate ACC’s prediction of demand surge. The March sales of four cement companies, including companies of the Aditya Birla Group, Jaiprakash Associates, JK Lakshmi and Ambuja, have seen robust growth in the range of 40-75 per cent, mainly due to higher consumption by the building industry. But the rising demand may suffer a set back in December when excess supply is expected to hit the market.
Rating agency Fitch had predicted in a recent report that the country would add about 50 million tonnes cement capacity in 2010, taking the total to around 300 million tonnes, resulting in the shrinking of capacity utilisation to 75 per cent from around 87 per cent in 2009.
As the cement industry reels under high raw material costs and reduced coal linkages, companies are exploring alternative options such as rubber tyres and rice husk as substitutes for fuel. Companies such as Grasim Industries, ACC, and Shiva Cement have started using alternative fuels in their plants while other cement firms are exploring similar techniques to deal with the fuel shortage.
“As coal prices are rising, there is no other option but to use alternative fuels like rubber tyres, saw dust and sewage as alternatives, though the percentage is small currently,” said Shree Cement managing director Hari Mohan Bangur. Other companies such as JK Cement, too, have plans to use alternatives such as city waste, rubber tyres and saw dust for the production of cement.
Cement firms recently wrote to the coal ministry seeking additional supplies from Singareni Collieries Co, one of the largest suppliers to cement plants in the southern states.
R P Gupta, chairman and managing director of Shiva Cement, said: “We have recently started using char (a by-product of steel manufacturing) as an alternative for coal. As cost saving is concerned, one needs to see things in the long term. Initially, it’s around 3 per cent of total raw material cost but it will increase to 5-10 per cent in the next few years.”
The Indian cement industry is likely to face a coal crunch in the short-to-medium term, say analysts. “Companies will have to take the tough measure as importing coal is a costly proposition,” said Rupesh Sankhe, analyst at Angel Securities.
There is a gap between the demand and supply of coal and the companies have to create alternative arrangements, say industry experts. Even, coal supplies may see a slight drop in August due to rains. According to the Cement Manufacturers’ Association, about 17.2 mt were produced and 17.3 mt were despatched in June against 16.6 mt and 16.7 mt respectively in June 2009.
But whatever the constraints, there is no doubt that the Indian cement industry is on a growth path that reflects the country’s infastructure growth and relatively booming economy