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Cement Industry: Then, now & Hence

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The cement industry is poised for another revolution as it evolved over the past 25 years. The industry has added almost 250 million tonne of capacity since its decontrolled in 1989. As it moves ahead, a similar kind of capacity is slated to come up in next five years. Thus, the per head consumption will jump closer to the global average of 400 kg, works out Nitin Madkaikar, FIRST Infocentre.Cement production commenced in India, in 1914 with the setting up of a cement unit at Porbandar in Gujarat with a capacity of 1,000 tonne per annum. In its yester years the industry was controlled by the government. Controls on price and distribution were first imposed during the World War II, when it was deemed an essential commodity. Controls, in one form or another, continued almost uninterruptedly until 1982. During 1956, the State Trading Corporation was vested with a monopoly right over cement distribution of both, domestically produced as well as imported cement. At the same time, freight equalisation scheme was introduced, to bring in uniform selling price nationalwide.In 1958, a three-tier retention price scheme was introduced based on recommendations of the Tariff Commission’s study. Producers’ prices ranging from Rs 54.50 to Rs 80.50 per tonne was fixed based on the usual consideration of vintage and technological conditions of the plants. This pricing scheme continued up to 1969 and it was in the range of Rs 90.50 to Rs 96.05 a tonne. In between in 1966, the control over distribution was lifted and the responsibility was collectively taken up by cement manufacturers by forming the Cement Allocation and Coordination Organisation. However, the distribution control was re-imposed the very next year.In 1969, the three tier pricing scheme was replaced by a uniform retention price of Rs 100 a tonne, which continued until 1979 when the price reached Rs 185 to Rs 220 a tonne. An added incentive was provided to new units and expanded capacity by way of a retention price of Rs 296 a tonne. However this was short lived regime lasting till 1982 when government announced the partial removal of price and distribution controls. At this point the retention prices had reached Rs 233.39 to Rs 268.39 per tonne for existing units and Rs 344.39 for expanded and new units.In late 1980s, major emphasis was given to setting up mini cement plants, a scale down version of a large plant. The primary objective was to exploit the scattered limestone deposits which were too small to attract large cement plant. They were also justified on the basis of their relative low capital intensities, and, by virtue of their locations in backward areas, their ability to meet local demand, which again would not have been an attractive market for large cement plants located far away.Finally in 1989, the cement industry was completely decontrolled and by July 1991, it was delicensed industry. The following describes the various policy measures taken by the government and their impact on the industry then.The journey after thatIndian cement industry has made great strides in the two decades post-decontrol and delicensing in different spheres of its operations. It now occupies second place in the world in terms of capacity and has achieved pride in technological innovations especially in overall energy and fuel efficiency. The industry has achieved breakthrough in changing the product mix and reducing the carbon footprint appreciably. The share of Ordinary Portland Cement (OPC) which was 84 per cent in 1991 has gradually come down to 28 per cent in 2011. Thus, on one hand it facilitated increased use of by-products like fly ash and granulated blast furnace slag and on the other hand it reduced carbon emissions to the extent of about 50 million tonne per year. These apart, the industry faces many new challenges to maintain its growth tempo, especially on availability of raw materials, reliable and economic sources of power and fuel and transportation and distribution of finished products in view of the emerging demand from infrastructure and housing sectors.Capacity, Production and ConsumptionPrior to decontrol, the industry had added 57 million tonne in the 75 years since its inception. Post decontrol, the installed capacity grew 8.7 per cent per annum as it added 27.90 million tonne during the eight-year period ended 1990. During the same period production galloped by close to 10 per cent a year, faster than capacity addition lifting capacity utilisation to about 80 per cent from 72 per cent in 1982. Post delicensing in 1991, both capacity addition and production growth trended lower rate while capacity utilisation was up at 90 per cent in 2000 from less than 80 per cent in 1990.In the last four years, the industry added almost doubled the capacity by adding 136 million tonne between 2007-08 and 2010-11, with 2009-10 alone adding the 59 million tonne, the highest ever annual increase.The sea change is attributed to the government’s policies beginning with the opening of the sector to foreign direct investments. The ten-fold increase in capacity from 30 million tonne in 1982 to 300 million tonne by 2011 is a clear indicator of the impact of privatisation of the cement industry.As of March 2011, India’s cement industry was the second largest in the world with a capacity of over 300 million tonne spread across 165 plants owned by 52 producers.Cement is the most preferred building material in India and is used extensively in housing and industrial construction. During the control regime, the government was the major consumer accounting for over 50 per cent of the total cement sold in India. This changed steadily, post decontrol and in the last decade, its share has come down to 35 per cent. Rural areas consume less than 23 per cent of the total cement. Availability of cheaper building materials for non-permanent structures affects the rural demand.Demand for cement is linked to the economic activity in India, broadly categorised into demand for housing construction, industrial construction and infrastructure creation (ports, roads, power plants). The real driver of cement demand in recent past has been the creation of infrastructure, including housing in India. With the boost given by the government to various infrastructure projects, road network and housing facilities, growth in the cement consumption has got a boost. The increase in infrastructure spending by the government coupled with the construction of the Golden Quadrilateral and the North-South and East-West corridor projects have led to an increase in consumption of cement.The average consumption of cement per capita is very low in India – in the range of 180-190 kg, as against the world’s average of 400-450 kg and 600-800 kg in developed countries. Thus, the potential for cement growth is high in India, as its consumption grows closer to the world average.Product and Technology MixThe composition of product mix in cement industry has undergone major shift especially during the last decade. The Table 2 gives product mix during the different period. OPC, which had a significant share of over 70 per cent in all the cement produced in the country at the time of complete decontrol, has come down to less than 25 per cent in recent years. It was taken over by PPC, whose share increased to 67 per cent from a mere 18 per cent in 1989.Prior to decontrol, 60 per cent of the installed capacity (in 1980) were based on wet process or semi-dry process and the rest was on dry process. At that time, plants used the energy intensive ball mills for grinding operations, although energy-saving vertical roller mills were already operational worldwide. There were a couple of trial installations prior to 1982, but immediately after decontrol some of the new plants which were ordered, took a bold initiative of investing in state-of-the-art plant although the technology was not entirely proven.The Indian cement industry became technology and energy conscious as it followed the trend of incorporating the latest energy-saving and process-efficient technology available worldwide while installing new capacity.The operations of different units have undergone substantial development with introduction of dry process technology based on pre-heater and pre-calciner. Various kiln systems have been developed to achieve improved fuel efficiency. The size of modern dry process kilns is now standardised between 1,500 tonne per day to as high as 4,500 tonne per day.The development in other areas include use of vertical roller mills in place of ball mills for grinding raw materials and coal, use of pre-blending stockpile and continuous homogenising silos for homogenisation of raw meal, use of roller press and high efficiency separators for energy efficient cement grinding, electronic packing machines for improved weight reliability and efficiency, packed bag loading machines, advanced process control and instrumentation, etc. The dry process cement plants presently being installed are equipped with most effective pollution control measures to fulfil the stipulations laid down by the Pollution Control Authorities. Many old plants are now installing pollution control equipment to meet the stipulations. Suitable pollution control equipment of advanced design including ESP, fabric bag dust collectors, gravel bed filters, etc are now available in India from reputed manufactures.Industry OutlookIndustry leaders and experts opine that the cement consumption curve in developed countries in the West and in Europe has flattened as they have reached their consumption plateau. For the next 20-25 years, the Asia pacific region will be the potential growth areas for cement industry. Thus, for India, the gap between its current per capita cement consumption and that of the world is almost twice – 220-260 kg. And to reach the per capita level of 425-450 kg per head, Indian cement capacity will have to reach 725-750 million tonne by 2035.In India, aggressive capacity addition has resulted in overcapacity and rising raw material and energy costs adversely affected the profitability of cement producers in recent years. However, the low per capita cement consumption, expected government spending on infrastructure during the XIIth Five Year plan period of about US$ 1 trillion, demand for mass housing reflects potential for future growth. The current overcapacity in the industry is apparently temporary.Cement is not the end-use product as concrete and mortar are the real end-products. Use of concrete at present is very low, about 0.5 tonne per head annually against world’s average of one tonne. Use of concrete and cement-based products especially in the vital infrastructure projects including irrigation would boost the demand.Upcoming cement capacitiesAs of early 1 August 2011, there were 358 projects on hand entailing a capacity build-up of 680 million tonne. This includes 238 million tonne of projects which were under various stages of implementation and another 414 million tonne of projects which were in announcement stage. About Rs 91,500 crore are being invested in projects under implementation while those in the announcement stage envisaged an investment of Rs 140,000 crore.A large number of projects which are under implementation are slated to come up in 2013-14 adding over 47 million tonne. The next two years, 2011-12 and 2012-13 will see about 35-40 million tonne added annually. However, completion schedule for 49 projects were not available while writing this report. These entailed a total capacity of 85 million tonne.Considering the projects under implementation, about 238 million tonne of cement capacity is slated for addition in the next 4-5 years spread over 123 plants in various size. Close to 40 million tonne each are being implemented in the states of Karnataka, Gujarat and Tamil Nadu. While most of the projects in Gujarat and Karnataka were attracted by the investment summits, the Vibrant Gujarat and Karnataka Global Investment Summit, the other states with large limestone deposits had marginal projects.Thus, as the cement industry assumes a larger size, almost doubling its capacity in the coming year, the challenges are even more severe and dramatic. While on one hand mining leases are not easily available, land acquisition has become major problem and availability of quality limestone has reduced, on the other hand, cost of coal and petroleum products are zooming which will translate into higher production cost and increased logistics expenses. Thus, it will be interesting to see how the industry, which until now have found viable solutions, come up with an amicable solutions to these new impediments.

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