The first Round Table Conference of Indian Cement Review was held on 10th June 2011 at Hotel Intercontinental, Mumbai to discuss key issues confronting the cement industry.
The conference was attended by eminent personalities from cement and its related industries. The attendees were Sumit Banerjee, Vice Chairman, Reliance Cementation; Vinod Juneja, Managing Director, Binani Cement; K K Taparia, Deputy Managing Director, Universal Construction Machinery & Equipment; Ravindra Phadke, Managing Director, Intensiv Filter India, Rajesh Sarada, Assistant Vice President, Reliance Cementation; and Jayaram Nambiar, Ex-Managing Director, Pfeiffer India. Pratap Vijay Padode, Managing Director and Editor-in-Chief, Indian Cement Review, Roshan Wadhera, Founder Editor, Indian Cement Review and Nitin Madkaikar, Economist – Head of Research, FIRST Infocentre, were the moderators.
A majority of cement players were on a strong wicket with double-digit growth in despatches a couple of years back. With demand growing rapidly, no one was worried about a supply overhang and players continued to invest heavily in capacity expansion. However, this scenario has completely changed over the past one year, thanks to an unexpected drop in demand. In spite of a weak demand, prices have moved up in various markets. The industry is likely to add more than 300 million tonne taking the total capacity to 600 million tonne by 2015. The Round Table has sought answers to the below points considering the industry reaches the 600 mt level.
- Demand, potential drivers
- Supply chain management
- Equipment supplies
- Human resources
- Export market
Pratap Padode – We expect another 300 million tonne to be added by 2015, taking the total capacity to 600 million tonne. To begin the discussion, we will start with the way the capacity is being built up. What would be the demand drivers in years to come?
Though a lot has been talked about over capacity, actual capacity additions are not great and the graph looks more or less like a hockey stick. The actual capacity coming on stream is much lower due to several factors. Major policies like the land acquisition, rehabilitation and resettlement (R-n-R) and certain mining policies are in limbo. Many large projects have been stalled. Limestone resources have been inadequate and are becoming scarce with no new licenses being issued all over India, barring one or two states. Interest rates have shot up in the past six months. The cement industry undergoes a classical cycle in which there is a rush for investments in capacity which are disproportionate in terms of growth which then pulls down prices and the slump continues. For a few years there is a lack of investment and again a demand imbalance is created, which attracts investments. But investment will also get tampered or moderated, factors like getting limestone leases has become difficult, getting money is becoming difficult, so all these issues will tamper.Hence we do not expect significant capacity additions till 2015. According to our forecast, the figures for 2015 are capacity – 395 million tonne, production – 357 million tonne, and demand – 306 million tonne.I support the view of Sumit Banerjee regarding capacity build-up and cement prices. According to me, the maximum capacity that can be added in a year till 2015 will be 22-25 mt. So in three years at the most 75 mt will be added.
The figure of 600 million tonne appears impossible unless, capacity rises on limestone availability, plants are replaced and demand is in place. We expect new capacity to come as a result of additions to the existing plants and not much by the way of new production plants. Additions to the existing plant will result in economies in scale thereby reducing the production cost per tonne. Government has to do something on the mining front and look into issuing new mining leases. Equipment and logistics are not a constraint for the industry, thanks to advancements in technologies. Infrastructure sector has a potential to grow like the IT industry. In few applications, glass is replacing cement and this is leading to a reduction in demand.
To reach 600 milion tonnes from here, we will have to add 75 million tonne a year, which looks quite impossible task. Also industry does not have that kind of capability, to build 75 million tonne in a year. The markets also has to grow exponentially as against the 4.5 per cent rise seen in 2010-11. From 200 million tonnes to 500 million tonnes, consumption looks very optimistic. Over all consumption growth scenario is about 12-15 per cent with infrastructure consumption to grow exponentially by 20-25 per cent.
I agree to a large extend with the opinion express. Until now, the maximum we have added is about 40 million tonne in a year. Thus I don’t think adding 75 million tonne will be a very big task. But I also agree that there would be constrain in areas like land acquisition, mining and similarly there would also be issues on the demand. I do not expect demand to rise by the pace which is being projected.
Talking about growth drivers, the Pradhan Mantri Gram Sadak Yojana (PMGSY) for the upgradation of rural roads is a huge demand driver for cement. However, government should provide some incentives in the form of lower interest rates to companies who supply cement to these government infrastructure programs. Any cement company which were supplying under this programme should get a special rate of interest to supply. Funds should be available at interest at par with other infrastructure industries.Also the issue of time and cost needs a serious attention from the government. Kamal Nath, the then road minister, had conceived 52 road development projects. But when new minister, C P Joshi took over, he recommended all these 52 projects for reviewing. Nothing was taken forward later. These projects would have created huge demand. This volatility is undesirable. The Delhi-Mumbai dedicated freight corridor project should generate huge demand and government should allow cement plants to be located close to the project site, without going much into the environmental clearances.
How can the logistics processes be streamlined and made cost-effective in order to meet the demand that can arise when capacity expansion gathers momentum?
Sumit Banerjee: The transportation of cement by water cost 1/3rd of what is cost by road. Transportation opportunity by water route is a big potential which is hardly been exploited. One needs to recognise that the importance of inbound-outbound logistics. Until now the industry has been able to manage well to pass on the cost. For water transport which is currently available is too low at about 1.5 metre for any large size vessel to come in. Coastal transportation has so far been tried by UltraTech and Ambuja, because their plants are near to costal areas in Gujarat. If one looks at other countries, China hardly transport by land, all the cement is transported by water. All their upcoming plants are either located on the coast or on large rivers. In India, railway infrastructure is currently inadequate and as more private investment flow into upgrading and expanding the railway infrastructure, this mode of transportation will become more economical.
K K Taparia: One factor that will need to change and also visible to some extent is setting up grinding plants near the consuming market. So, partly logistic costs will ease down by having such spilt location. According to my experience clinker transportation is easy than cement transportation. It may also happen that coastal location may import clinker, addition of the additive and grinding may happen elsewhere.Vinod Juneja : Currently the cement industry in India is in a pathetic situation. None of the cement manufacturers get support despite having ample raw material, we do not have good port logistics. For transporting cements from plants in Rajasthan and Madhya Pradesh, they have to be transported by road for export. Most of the cement plants are not near to the coast, very few countries in the world allow the cement plant near coast because for them cement is a dirty cargo.
Railways are uncertain in allotting wagons for cement transport. Further, if the conditions are aggravated by some natural calamity all the wagons are diverted to fertilisers, foodgrains, etc. So the industry is forced to transport cement by road which increases the cost significantly.
Pratap Padode: On human resource front, the industry is facing serious challenges and the projections show that the requirement will more than double and the challenges will be even more serious. What is cement industry doing about it?K K Taparia: Industry has to achieve a tradeoff between automation and manpower. Manpower shortage will definitely exist, because every engineering graduate today is attract towards the IT sector, given the attractive compensation package it offers. On the operations front, the cement industry has to employ unskilled labour which is painful. Majority of personnel is required in the packing division. There is an extreme shortage of well-trained operators for operating packing machines. Taking this into account, we have started our own training institute. The IT industry provides good training modules before working on the job. On the same lines, cement industry needs to come up with cement-specific courses.
Sumit Banerjee: India’s strength lies in its working age population. However, professionals are moving away from manufacturing and the industry is not able to attract or retain the cream, which is heading towards IT. The scenario was very much different 20 years back when jobs in steel and cement industry were among the most coveted ones. Industry needs to design such a remuneration package that would attract right talent. Also the number of migrant workers in the cement industry has drastically fallen down, due to the National Rural employment Guarantee Act scheme.Jayaram Nambiar: Looking at the current situation, the industry will definitely face serious shortage of skilled labour. The number of people applying for technical courses in the government ITI institutions has come down. There is no availability of local labour. For constructing a building in Chennai, labours come from Bihar and Orissa. Cement companies are investing in capacities, but no investment is done for training operators.Ravindra Phadke: If skilled people from unorganised sector are given proper training on an organised platform the issue of labour shortage can be solved to a certain extent. In 2000-2005, it was very difficult to find graduate in engineering, since everybody was going for IT.Rajesh Sarada : I think it is all about the quality of life. Most of the cement plants are in isolated areas and to attract and retain talent is going to be a big challenge. It has also something to do with compensation and more on quality of life. Today if somebody is posted in an isolated location, it becomes impossible for them to have quality educational, or or indulge in social activities. So this is one area where the industry will have to focus. Nitin Madkaikar:The slide alongside shows the spending of the top 30 cement companies on plant and machinery during the year. If you see the last three years, the industry has spent more than Rs 6,000 crore, which has led to the expansion of capacity. Looking ahead, if 300 milion tonne is to be added does the machinery manufacturers have the capacity to meet the demand.Sumit Banerjee: I think both are issues. One is the capacity of plant and machinery manufacturers, and the other is the good construction contractors to be able to construct this plant. Equipment manufacturing company can scale up, but I believe that the construction machinery plant as on date, have lot more competing opportunities for the construction plant. Plant, machinery, civil, construction, erection, everything requires investment. For 100 million tonne cement capacity plants, about Rs 55,000 crore is the investment required in plants and equipments and this kind of business equipment manufactures and the civil contractors are looking at.Nitin Madkaikar: What are the opportunities and potential for cement export? In the past 10 years we have seen exports peaking to seven million tonne in 2005, but has never recovered after that. Today Nepal is largest importer followed by Qatar and Yemen. Are these growth markets for cement industry?Rajesh Sarada: Actually all these market have started putting up their capacities. Pakistan is the net exporter of cement and Sri Lanka is also an exporter and they are also coming up strongly. Nevertheless, cement companies get better realisation in the domestic market than in export.Sumit Banerjee: Exports are largely done from Gujarat where there are coastal plants. Companies have exported when they find grinding capacity overseas or price realisation is better, particularly in the Middle East. I don’t think prices overseas or the logistic infrastructure is consistent. Export oriented plants is yet to come up in India. Right now cement is exported to Sri Lanka because Ambuja and Ultratech have grinding units there. verall, atleast for next five years, export is not a destination for Indian cement industry. Vinod Juneja: Binani Cement did get into export, but one the requirement was packing in 30 kg bags whereas we in India have packing plant for 50 kg bags. That would entail investing about a crore of rupees for remodeling the packing plant. Further, there is no guarantee of regular orders.K K Taparia: We need to have a long term export policy. The cement industry has its own ups and downs. For example, In Gujarat, when cement is in surplus, prices there go down and companies try to export. Government direction is also required. Conclusion
Pratap : We began our discussion with the capacity build-up and the August experts have given different views on the facts that this it is an ambitious target of 600 million tonne. Many views points towards issues like tampering, mining leases, land acquisition, etc which will not help projects to materalise in an exponential way.
In the supply chain management Sumit Banerjee has suggested the use of waterways to reduce costs. Also he pointed out the issues faced with Railways.Last, but not the least, the availability of human resources. The cement industry has to do something to attract talent. The industry should train operators while machine manufacturers can also do something on that line. In between we also discussed export potential which appears bleak as of now.
And that brings us to the end