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Gypsum Demand and Supply Scenario in India

Published

3 years ago

October 14, 2021

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Though gypsum accounts for just 2-3 per cent of the total cost of cement sales, Indian cement manufacturers are likely to face issues regarding its availability and cost in the near future. Identifying and ensuring a consistent supply of gypsum has become a challenge for cement producers.

Ramachandran elaborates on the gypsum demand and supply scenario in India.

The Indian cement industry is the worlds second largest manufacturer of cement after China, ahead of developed nations such as the US and Japan. However IndiaÂ´s cement capacity is still far lower than China ChinaÂ´s capacity, which was 2020 mtpa in 2012. Per capita consumption of cement in India, as of 2012 was at 176 kgs as against 1210 kgs in China, indicating the huge potential for growth. It is anticipated that growing demand from rural infrastructural developments will infuse new life in cement production and will affect high per capita cement consumption, too.

IndiaÂ´s cement consumption has shown a moderate year-on-year growth in the past few years. Along with steady growth, a boom in residential, commercial, infrastructure and office real-estate segments will further drive the cement demand in the country. Almost every Indian cement major has expanded their installed capacity in the backdrop of the government-backed infrastructure projects, as these projects have created a strong demand for cement in the country. Moreover, it is anticipated that the industry players will continue to increase their annual cement output in the coming years, due to which the countryÂ´s cement production will also grow.

As per the working group for the cement industryÂ´s 12th Five-Year- plan report, the government of India plans to increase its investment in infrastructure to USD 1 trillion. Further, infrastructure projects such as dedicated freight corridors, upgraded and new airports and ports are expected to enhance the scale of economic activity, leading to a substantial increase in cement demand. The housing sector and roads also provide significant opportunities. The cement demand is likely to be sensitive to the growth in these sectors as also policy initiatives.

It may be desirable to create some excess capacity rather than operating with shortages or supply bottlenecks. According to the working group on the cement industry report, in view of the demand and installed capacity growth projections, the additional installed cement capacity requirement during the next 15 years would be around 735 million tonnes, i.e, in addition to the existing capacity of around 350 million tonnes.

Gypsum demand in the cement industry
On the basis of these projected cement production growth figures, as per the base line, IndiaÂ´s cement industry will be requiring over 428 million tonnes of gypsum during the next 15 years against the local gypsum resources (natural and as by-product) of around 115 million tonnes, which means India depends on over 313 million tonnes of gypsum through imports. Natural gypsum will remain the primary source of cement commodity for decades to come. There is presently no substitute for gypsum in the production of cement.

Gypsum plays a very important role in controlling the rate of hardening of cement. During the cement manufacturing process, a small amount of gypsum (around 5 per cent) is added, in the final grinding process. The rising costs of gypsum has been putting a heavy strain on IndiaÂ´s cement industry; in the last couple of years, most of the IndiaÂ´s cement players have been reported that their gypsum costs have increased substantially and anticipate that the prices of our major inputs such as gypsum, coal and slag costs may also be under pressure in the coming years. The Union Budget of 2011 stated that it was decided to bring down the import duty on critical raw material gypsum by half, to 2.50 per cent along with coal. The cement industry has been asking to bring the import duty on gypsum and coal down to nil from 5 per cent, to partly offset rising manufacturing costs. In February 2011, the department related Parliamentary Standing Committee of Commerce and Industry recommended 0 per cent import duty on gypsum.

Local natural gypsum supply
India produces around 2.50 per cent of the worldÂ´s 150 million tonnes of natural gypsum. The country has a total reserve of recoverable cement and natural gypsum of 39 million tonnes , as per a 2010 report issued by the Indian Bureau of Mines (IBM); the majority of the reserves are located in Rajasthan.

IndiaÂ´s annual production of natural gypsum is around 3.50 million tonnes only, mainly on account of non-viability of mining deep- seated gypsum reserves in Rajasthan. Rajasthan accounts for about 99 per cent of total production of natural gypsum in the country, but as it is in north-west India, transportation costs are prohibitive for many cement producers located elsewhere in the country. Natural gypsum is used in India for manufacturing fertilizer, cement and gypsum board industries. High purity gypsum is earmarked only for the fertilizer industry and poor quality of gypsum (of purity less than 60 per cent) is supplied to cement and gypsum board industries. Natural gypsum supply to the cement industries will continue to be around 3.50 mtpa till 2021.

Local phospho-gypsum supply
Annual production of phospho-gypsum in India is around 6 million tonnes and cement sectors use around 4 – 5 million tonnes on a yearly basis. Basically, the phospho-gypsum supplies will be constrained by issues around rock phosphate availability for DAP (diammonium phosphate) production. As per IBM reports, fluorine and phosphate contents in by-product gypsum are considered deleterious. The phosphate content affects the setting properties of cement and fluorine content causes ring formation in kilns. The limit generally specified for use in cement is 0.15 per cent 2 to 5 maximum. Phospho-gypsum is radioactive due to the presence of naturally occurring uranium and radium in the phosphate ore. Phospho-gypsum contains about 1 per cent P2O5, 1 per cent flourine and 10 to 30 times more radon, neither of which is desirable. As per the Environment Protection Agency, USA, reports, phospho-gypsum is unsuitable for sale as common gypsum. Phospho-gypsum supply to the cement industries will continue to be around 6 mtpa in the long term.

Local marine gypsum supply
Marine gypsum are normally recovered from salt pans during the production of salt, mainly from Gujarat and Tamil Nadu. Marine gypsum production is in a very negligible quantity, around 0.20 mtpa, and expected to remain negligible in the long term.

Natural gypsum supply from Pakistan
The gypsum supply by road from Pakistan is of a very small quantity. Presently the supply is around 0.30 mtpa and the maximum supplies shall be restricted to the level of 0.50 mtpa in the future due to heavy transportation costs.

Natural gypsum supply from Thailand
ThailandÂ´s local consumption of gypsum is around 4 mtpa against the production of around 11 mtpa. In Thailand, gypsum export is likely to decrease due to increased local consumption.Supply constraints are anticipated in the future because of limited reserves and huge local consumption. The estimated natural gypsum reserves (proven and probable) of Thailand as of 2010 were 200 million metric tonnes.

Gypsum export has been controlled by the Thai government through non-issuance of new mining license and exports are strictly under a non-marketable quota system. Its efforts are based on the result of a study that uses the concept of maximizing net present value to calculate the best way of using gypsum mineral reserves for maximum profit; it was found that the Thai government should push its gypsum FOB selling price up to the maximum level from the current minimum FOB price of USD 16.50 per tonne. In 2012, ThailandÂ´s average gypsum FOB selling price reached over USD 17 per tonne. Thailand is expected to stop exporting its gypsum and divert the remainder of its gypsum to domestic consumption only. In addition, they will be continuously pushing the gypsum FOB selling price up to a certain level, maybe as close to the 2012 Australian gypsum FOB selling price of USD 22 per tonne.

The government controls on production and export of gypsum may result in lower exports going forward. Thailand exports its gypsum to Japan, Malaysia, India, Indonesia, Vietnam, etc, and maintains a balance slate of export destinations. Thailand exports around 15 per cent (1 mtpa) of the total export volume to India; imports from Thailand to India may go up to a maximum 1.50 mtpa in the future.

Natural gypsum supply from Iran
In spite of large gypsum reserves, Iran exports only around 10 per cent of its total gypsum production and the balance quantity is consumed by local cement and construction industries. IranÂ´s local gypsum consumption is around 9 mtpa against the production of 12 mtpa; due to increasing local demand, total exports are expected to remain capped between 2-3 mtpa. In addition, the increasing gypsum production cost and high inflation in Iranian economy will affect local gypsum production and exports. Iran exports its gypsum to Kuwait, UAE, and India, among other nations. Further, importing gypsum from Iran is becoming difficult for Indian consumers because of various issues including restrictions/sanctions imposed by the UN and the US. Iran exports around 30 per cent (0.50 mtpa) of the total export volume to India and this may go up to a maximum of around 1.20 mtpa in the future.

Thus, the situation of potential shortfall in supply, coupled with a huge increase in demand for gypsum in India resulting from rapidly increasing cement production capacity, is expected to cause a significant price increase for gypsum in the years to come. It is in this backdrop that the potential supply of gypsum from the Sultanate of Oman becomes a very interesting prospect. Even in this shortage of supply scenario, the Indian gypsum demand will be large enough to accommodate new additional import supplies from distant countries like Egypt, Turkey, Mexico, but it will lead to very high FOB and ocean freight prices for Indian consumers.

Tough times ahead
The tightening demand supply scenario will be reflected in an upward trend in gypsum FOB prices and delivery prices into India. Gypsum from the Sultanate of Oman will be the preferred source of imports. OmanÂ´s gypsum export jumped from around 53 per cent to 1.95 million tonnes in 2012, from 1.25 million tonnes in 2011. However, even after considering the highest quantity of gypsum supply from Oman, the gypsum demand supply deficit will widen on an yearly basis and this situation will be reflected in an upward trend in gypsum prices.

References

US geological survey reports.
Indian Ministry of Commerce & Industry.
Rajasthan State Mines and Minerals Limited.
Cement report Indian Parliamentary Standing Committee on Commerce.
12th Five-Year-Plan Planning Commission Working Group report on Indian cement sector.
Buildinfoconsult – India becomes third largest construction market by 2020.
Mckinsey & Company Environmental & Energy Sustainability: An Approach for India.
Government of India Ministry of Urban Development Strategic Plan 2011 2016.
Strategies for maximizing the social benefit from the exploitation of gypsum mineral resources of ThailandÃ¶ – University of Stirling, UK.
Department of Primary Industries and Mines Thailand.
Thailand Mineral Resources Development – Thailand Development Research Institute.
Various research reports on India Indian cement industry

The Indian gypsum demand will be large enough to accommodate new additional import supplies from the distant countries like Australia, Egypt, Turkey, Mexico etc.

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Price hikes, drop in input costs help cement industry to post positive margins: Care Ratings

Published

3 years ago

October 21, 2021

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Region-wise,the southern region comprises 35% of the total cement capacity, followed by thenorthern, eastern, western and central region comprising 20%, 18%, 14% and 13%of the capacity, respectively.

The cement industry is expected to post positive margins on decent price hikes over the months, falling raw material prices and marked drop in overall production costs, said an analysis of Care Ratings.

Wholesale and retail prices of cement have increased 11.9% and 12.4%, respectively, in the current financial year. As whole prices have remained elevated in most of the markets in the months of FY20, against the corresponding period of the previous year.

Similarly, electricity and fuel cost have declined 11.9% during 9M FY20 due to drop in crude oil prices. Logistics costs, the biggest cost for cement industry, has also dropped 7.7% (selling and distribution) as the Railways extended the benefit of exemption from busy season surcharge. Moreover, the cost of raw materials, too, declined 5.1% given the price of limestone had fallen 11.3% in the same aforementioned period, the analysis said.

According to Care Ratings, though the overall sales revenue has increased only 1.3%, against 16% growth in the year-ago period, the overall expenditure has declined 3.2% which has benefited the industry largely given the moderation in sales.

Even though FY20 has been subdued in terms of production and demand, the fall in cost of production has still supported the cement industry by clocking in positive margins, the rating agency said.

Cement demand is closely linked to the overall economic growth, particularly the housing and infrastructure sector. The cement sector will be seeing a sharp growth in volumes mainly due to increasing demand from affordable housing and other government infrastructure projects like roads, metros, airports, irrigation.

The government’s newly introduced National Infrastructure Pipeline (NIP), with its target of becoming a $5-trillion economy by 2025, is a detailed road map focused on economic revival through infrastructure development.

The NIP covers a gamut of sectors; rural and urban infrastructure and entails investments of Rs.102 lakh crore to be undertaken by the central government, state governments and the private sector. Of the total projects of the NIP, 42% are under implementation while 19% are under development, 31% are at the conceptual stage and 8% are yet to be classified.

The sectors that will be of focus will be roads, railways, power (renewable and conventional), irrigation and urban infrastructure. These sectors together account for 79% of the proposed investments in six years to 2025. Given the government’s thrust on infrastructure creation, it is likely to benefit the cement industry going forward.

Similarly, the Pradhan Mantri Awaas Yojana, aimed at providing affordable housing, will be a strong driver to lift cement demand. Prices have started correcting Q4 FY20 onwards due to revival in demand of the commodity, the agency said in its analysis.

Industry’s sales revenue has grown at a CAGR of 7.3% during FY15-19 but has grown only 1.3% in the current financial year. Tepid demand throughout the country in the first half of the year has led to the contraction of sales revenue. Fall in the total expenditure of cement firms had aided in improving the operating profit and net profit margins of the industry (OPM was 15.2 during 9M FY19 and NPM was 3.1 during 9M FY19). Interest coverage ratio, too, has improved on an overall basis (ICR was 3.3 during 9M FY19).

According to Cement Manufacturers Association, India accounts for over 8% of the overall global installed capacity. Region-wise, the southern region comprises 35% of the total cement capacity, followed by the northern, eastern, western and central region comprising 20%, 18%, 14% and 13% of the capacity, respectively.

Installed capacity of domestic cement makers has increased at a CAGR of 4.9% during FY16-20. Manufacturers have been able to maintain a capacity utilisation rate above 65% in the past quinquennium. In the current financial year due to the prolonged rains in many parts of the country, the capacity utilisation rate has fallen from 70% during FY19 to 66% currently (YTD).

Source:moneycontrol.com

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Wonder Cement shows journey of cement with new campaign

Published

3 years ago

October 21, 2021

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The campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV…

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Cement manufacturing company Wonder Cement, has announced the launch of a digital campaign ‘Har Raah Mein Wonder Hai’. The campaign has been designed specifically to run on platforms such as Instagram, Facebook and YouTube.

#HarRaahMeinWonderHai is a one-minute video, designed and conceptualised by its digital media partner Triature Digital Marketing and Technologies Pvt Ltd. The entire journey of the cement brand from leaving the factory, going through various weather conditions and witnessing the beauty of nature and wonders through the way until it reaches the destination i.e., to the consumer is very intriguing and the brand has tried to showcase the same with the film.

Sanjay Joshi, executive director, Wonder Cement, said, "Cement as a product poses a unique marketing challenge. Most consumers will build their homes once and therefore buy cement once in a lifetime. It is critical for a cement company to connect with their consumers emotionally. As a part of our communication strategy, it is our endeavor to reach out to a large audience of this country through digital. Wonder Cement always a pioneer in digital, with the launch of our IGTV campaign #HarRahMeinWonderHai, is the first brand in the cement category to venture into this space. Through this campaign, we have captured the emotional journey of a cement bag through its own perspective and depicted what it takes to lay the foundation of one’s dreams and turn them into reality."

The story begins with a family performing the bhoomi poojan of their new plot. It is the place where they are investing their life-long earnings; and planning to build a dream house for the family and children. The family believes in the tradition of having a ‘perfect shuruaat’ (perfect beginning) for their future dream house. The video later highlights the process of construction and in sequence it is emphasising the value of ‘Perfect Shuruaat’ through the eyes of a cement bag.

Tarun Singh Chauhan, management advisor and brand consultant, Wonder Cement, said, "Our objective with this campaign was to show that the cement produced at the Wonder Cement plant speaks for itself, its quality, trust and most of all perfection. The only way this was possible was to take the perspective of a cement bag and showing its journey of perfection from beginning till the end."

According to the company, the campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV. No other brand in this category has created content specific to the platform.

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In spite of company’s optimism, demand weakness in cement is seen in the 4% y-o-y drop in sales volume. (Reuters)

Published

3 years ago

October 21, 2021

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Cost cuts and better realizations save? the ?day ?for ?UltraTech Cement, Updated: 27 Jan 2020, Vatsala Kamat from Live Mint

Lower cost of energy and logistics helped Ebitda per tonne rise by about 29% in Q3
Premiumization of acquired brands, synergistic?operations hold promise for future profit growth Topics

UltraTech Cement
India’s largest cement producer UltraTech Cement Ltd turned out a bittersweet show in the December quarter. A sharp drop in fuel costs and higher realizations helped drive profit growth. But the inherent demand weakness was evident in the sales volumes drop during the quarter.

Better realizations during the December quarter, in spite of the 4% year-on-year volume decline, minimized the pain. Net stand-alone revenue fell by 2.6% to ?9,981.8 crore.

But as pointed out earlier, lower costs on most fronts helped profitability. The chart alongside shows the sharp drop in energy costs led by lower petcoke prices, lower fuel consumption and higher use of green power. Logistics costs, too, fell due to lower railway freight charges and synergies from the acquired assets. These savings helped offset the increase in raw material costs.

The upshot: Q3 Ebitda (earnings before interest, tax, depreciation and amortization) of about ?990 per tonne was 29% higher from a year ago. The jump in profit on a per tonne basis was more or less along expected lines, given the increase in realizations. "Besides, the reduction in net debt by about ?2,000 crore is a key positive," said Binod Modi, analyst at Reliance Securities Ltd.

Graphic by Santosh Sharma/Mint
What also impressed analysts is the nimble-footed integration of the recently merged cement assets of Nathdwara and Century, which was a concern on the Street.

Kunal Shah, analyst (institutional equities) at Yes Securities (India) Ltd, said: "The company has proved its ability of asset integration. Century’s cement assets were ramped up to 79% capacity utilization in December, even as they operated Nathdwara generating an Ebitda of ?1,500 per tonne."

Looks like the demand weakness mirrored in weak sales during the quarter was masked by the deft integration and synergies derived from these acquired assets. This drove UltraTech’s stock up by 2.6% to ?4,643 after the Q3 results were declared on Friday.

Brand transition from Century to UltraTech, which is 55% complete, is likely to touch 80% by September 2020. A report by Jefferies India Pvt. Ltd highlights that the Ebitda per tonne for premium brands is about ?5-10 higher per bag than the average (A cement bag weighs 50kg). Of course, with competition increasing in the arena, it remains to be seen how brand premiumization in the cement industry will pan out. UltraTech Cement scores well among peers here.

However, there are road bumps ahead for the cement sector and for UltraTech. Falling gross domestic product growth, fiscal slippages and lower budgetary allocation to infrastructure sector are making industry houses jittery on growth. Although UltraTech’s management is confident that cement demand is looking up, sustainability and pricing power remains a worry for the near term.