INDIA

Peter Edwards, Global Cement Magazine

The Incredible Indian cement industry

The Republic of India occupies the bulk of the Indian subcontinent, the geographical region that is also home to Bangladesh and Pakistan in central southern Asia. The worlds largest democracy1 and third largest economy in terms of purchasing power parity, India is the second most populous country after China, a position also held by its incredible cement industry...

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any diverse populations have been attracted to the fertile territories that constitute modernday India over the millennia, combining to create a unique modern culture. Peoples arriving from parts of modern Afghanistan, Turkey and Arabia merged with native Hindu cultures and the country flourished as a trade cross-roads from around 400 onwards, with development of classical science, maths, art and wider culture. In the early 16th Century the Mughal Dynasty began following invasion by central Asian warriors. The Mughal powers administered new administative Below - Figure 1: GDP/capita systems that encouraged market-based trade and (red)2 and cement production unified disperate groups through inclusive systems, 3 data (blue) for India between which enabled a period of increased political and 1990 and 2011. Both GDP/ social stability. capita and cement production began to increase in the early At around the same time as the start of the Dynasty, 1990s amid economic liberaliEuropean explorers were developing staging posts sation, but the ratio between along the coast of modern India. By the turn of the them is much higher than in 1800s, Great Britain had the largest influence of the many other nations. colonial powers. Britain offi250 250 cially ruled India from 1858 to 1947, a period known as the British Raj, that also 200 200 covered parts of modernday Pakistan, Myanmar and 150 Bangladesh. 150 In 1947 the Raj came to an end when Britain passed 100 100 the Indian Independence Act, which created the states of India and Pakistan. 50 50 This arose due to constant pressure from Indian na0 0 tionalists, who were led 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 in the the latter stages by
Cement production (Mt) 1992 1994 1996 1998 2000 2002 2004 2006 2008

Mahatma Ghandi. Gandhi was famed for his policy of non-violence and civil-disobedience to the ruling British and is today known by Indians as the Father of the Nation. Today, India is a key member of the Commonwealth of Nations.

Economy
Indias economy is the third largest by GDP in terms of purchasing power parity but, with a very large population, it ranks only 165th in GDP/capita terms.1 Gradual de-centralisation of the economy since the early 1990s has allowed the development of a more diverse market economy that is increasingly driven by an educated and business-minded middle class. This is highlighted by Indias now world-famous telecomminications and service sector, which has grown extensively over the past decade.1 Increased variation has resulted in a reduction in Indias agriculture dependency, although this sector still supplies around 50% of the countrys income. Manufacturing remains strong, representing more than a quarter of output. However, despite economic expansion and development of its service sector, economic disparity remains a severe problem for India. Almost a third of Indians lived in poverty in 2011 and constant population growth makes it hard to increase living standards. For illustration, India welcomed its 1 billionth inhabitant in 2000. In just 12 years since then the population has increased to over 1.2 billion!

Cement industry - History4

The indigenous Indian cement industry traces its history back to 1914, at a time when the market was dominated by imports. In that first year the industry produced just 1000t of cement, but over just 10 years

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this figure increased to 0.26Mt in 1924. In the same 10year bracket, India consumed a total of 2Mt of cement, with around half imported. From a modern perspective the need to expand the industry is clear. However, the industry was fighting against poor public perception surrounding not only domestic Indian cement, but cement itself. Many producers went out of business as a result of price-wars between Indian producers who were aiming at a bigger slice of the future market. To end the uncertainty surrounding the industry and to campaign for tariffs on imported cement, the Indian Cement Manufacturers Association (ICMA) was set up in 1925. This subsequently transformed into two connected groups. The modern Cement Manufacturers Association (CMA) was reformed in 1961. Between 1925 and the early 1940s, the capacity of the Indian cement industry gradually increased to 1.8Mt in 1942, with imports dwindling to just ~1000t/yr over the same period. However, all was not well with the industry, which, like many industries across the world, suffered due to the Great Depression in the United States and the run-up to the Second World War in Europe. To combat continued price wars, Associated Cement Companies (ACC) was formed from 11 competing firms in 1936. In 1942 all of Indias cement capacity came under the control of Defence for India rules as part of the war effort. With up to 90% of cement heading directly to defence purposes, the apparent private market shrank by a factor of 10. After the conclusion of the Second World War, during which capacity reached 3.2Mt/yr, controls stayed in place. From 1945 to 1956 the government regulated prices directly. However, it became increasingly obvious that regulated prices from central government could not provide the cement that the country was demanding. The controls were relaxed in steps, with a free market from 1989 onwards. The result of de-regulation was a massive expansion of cement capacity, which has since only accelerated as the country has developed and opened up its economy. Many of the remaining dozen top players are Indian and are (in order of diminishing market share); Jaiprakash Associates (10%), The India Cements Ltd (7%), Shree Cements (6%), Century Textiles and Industries (5%), Madras Cements (5%), Lafarge (5%), Birla Cement (4%) and Binani Cement (4%). Between them the top 12 cement firms have around 70% of the domestic market.6 Around 100 smaller players produce and grind cement on a wide range of scales but are often confined to small areas.

Cement industry - Sustainability

The Indian cement industry, though large, is also one of the most thermally efficient, according to the World Business 4500 Council for Sustain4000 able Developments 3500 (WBCSD) Cement 3000 Sustainability Initia2500 tives (CSI) Getting the 2000 Numbers Right (GNR) 7 data programme. 1500 In 2010, the most 1000 recent year for which 500 data is available, India 0 USA Germany EU27 Brazil WORLD China India performed very favourably in terms of specific energy consumption per tonne of clinker produced, Above - Figure 2: Specific with an average 3130MJ/t across the 50% of cement energy consumption capacity that the GNR programme received data on. (MJ/t of clinker) for different countries and world regions Brazil and China, which also have rapidly-developing in 2010.7 India had the low7 large cement industries, performed slightly less well. est such energy requirement In all three cases, it is the recent expansion of the of any major cement industry in that nation that provides this thermal efindustry in that year. ficiency, a consequence of modern plants simply being more efficient than older ones. The comparison with NOTE: GNR values are rethe EU27 group of countries (and the USA to a greater ported voluntarily by industry extent), both of which have older industries, is clear. participants and so do not In the specific case of India, the efficiency of the represent actual averages. Coverage by region/country: new capacity is enhanced by the work of dedicated Brazil = 71%, China = 5%, plant engineers who seek to maximise the efficiency of EU27 = 96%, Germany 96%, the equipment in front of them. The fact that (expenIndia = 50%, USA = 77%, sive foreign) coal is the dominant fuel for the cement World = 25%.7 industry acts as a strong driver towards efficiency. Coal is also a reliable and stable kiln fuel, which means that Below - Figure 3: Specific Indian kilns can be very finely tuned and hence can be CO 2 emissions (kg/t of clinkmade more efficient than if a less reliable or variable/ er) for different countries and alternative fuel mix were to be used. world regions in 2010.7 When it comes to CO2 emissions per tonne of clinker, India performs 1000 1000 less well, making 837kg/t 900 900 7 of clinker. This is close 800 800 to the global average but 700 700 behind those industries 600 600 that have successfully 500 500 implemented alternative 400 400 fuel substitution such as 300 300 Germany. See page 18 200 200 for more on alternative 100 100 fuels in the Indian ce0 0 ment industry, China USA India Brazil WORLD EU27 Germany
Specific CO2 emissions (kg/t clinker) Specific energy consumption (MJ/t clinker)
China USA India Brazil

Cement industry - Overview

Today, the Indian cement industy is very large, second only to China in terms of installed capacity, and has grown at a very fast pace in recent years. The rate of growth over the past 20 years has been phenomenal, as shown by Figure 1.3 Since 1992 Indias cement production has more than quadrupled from around 50Mt/yr to 220Mt/yr in 2011. Although the Indian cement industry has some multinational cement giants, like Holcim and Lafarge, which have interests such as ACC, Ambuja Cement and Lafarge Birla Cement, the Indian cement industry is broadly home-grown.5 Ultratech Cement, the countrys largest firm in terms of cement capacity, holds around 22% of the domestic market, with ACC (50%-owned by Holcim) and Ambuja (50%-owned by Holcim) having 15% and 13% shares respectively.

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1. ACC, 1.2Mt/yr. 2. ACC, 0.9Mt/yr. 3. ACC, 3.7Mt/yr. 4. ACC, 0.5Mt/yr. (Grinding) 5. ACC, 4.4Mt/yr. 6. ACC, 1.58Mt/yr. 7. ACC,1.1Mt/yr. (Grinding) 8. ACC, 2.7Mt/yr. 9. ACC, 1.5Mt/yr. 10. ACC, 1.1Mt/yr. 11. ACC, 1.0Mt/yr. (Grinding) 12. ACC, 1.6Mt/yr. 13. ACC, 3.0Mt/yr. 14. ACC, 5.8Mt/yr. 15. Adhunik Cement (Dalmia Bharat Enterprises), 1.5Mt/yr. 16. Ambuja Cements, 5.5Mt/yr. 17. Ambuja Cements, 2.9Mt/yr. 18. Ambuja Cements, 0.5Mt/yr. (Grinding). 19. Ambuja Cements, 4.5Mt/yr. 20. Ambuja Cements, 1.5Mt/yr (Grinding). 21. Ambuja Cements, 1.6Mt/yr. 22. Ambuja Cements, 1.0Mt/yr. (Grinding). 23. Ambuja Cements, 12.Mt/yr (Grinding). 24. Ambuja Cements, 1.50Mt/yr. 25. Ambuja Cements, 1.8Mt/yr. 26. Ambuja Cements,1.0Mt/yr. (Grinding). 27. Ambuja Cements, 2.5Mt/yr. (Grinding). 28. Ambuja Cements,1.5Mt/yr. (Grinding). 29. Amrit Cement Industries Limited, 1.0Mt/yr. 30. Andhra Cements (Jaypee Group), 0.9Mt/yr. 31. Andhra Cements (Jaypee Group), 0.6Mt/yr. (Grinding). 32. Anjani Portland Cement, 1.30Mt/yr. 33. Asian Concretes & Cements, 1.30Mt/yr. 34. Bagalkot Cement & Industries, 0.30Mt/yr. 35. Barak Valley Cement, Barak Cement, 0.33Mt/yr. 36. Bharathi Cement Corporation, 5.0Mt/yr. 37. Bhavya Cements, 1.4Mt/yr. 38. Bheema Cements, 0.9Mt/yr. 39. Bhilai Jaypee Cement. 40. Bhilai Jaypee Cement, 2.2Mt/yr. (Grinding). 41. Binani Cement, 4.9Mt/yr. 42. Binani Cement, 1.4Mt/yr. (Grinding). 43. Birla Corp., 2.5Mt/yr. 44. Birla Corp., 1.7Mt/yr. 45. Birla Corp., 1.6Mt/yr (Grinding). 46. Birla Corp., 0.6Mt/yr. (Grinding). 47. Bokaro Jaypee Cement, 2.1Mt/yr. (Grinding). 48. Burnpur Cement, 0.3Mt/yr. 49. Burnpur Cement, 0.3Mt/yr. 50. Calcom Cement India, 2.1Mt/yr. 51. Cement Corporation of India, 0.2Mt/yr. 52. Cement Corporation of India, 0.24Mt/yr. 53. Cement Corporation of India, 1.0Mt/yr. 54. Cement Manufacturing Co., 0.6Mt/yr. 55. Century Textiles & Industries, 2.1Mt/yr. 56. Century Textiles & Industries, 3.8Mt/yr. 57. Century Textiles & Industries, 1.9Mt/yr. 58. Century Textiles & Industries, 1.0Mt/yr. 59. Chettinad Cement Corp., 5.5Mt/yr. 60. Chettinad Cement Corp., 4.3Mt/yr. 61. Chettinad Cement Corp., 1.7Mt/yr. 62. Chettinad Cement Corp., 2.0Mt/yr. 63. Dalmia Bharat Enterprises, 2.5Mt/yr. 64. Dalmia Bharat Enterprises, 4.0Mt/yr. 65. Dalmia Bharat Enterprises, 2.5Mt/yr. 66. DCM Shriram Consolidated, 0.4Mt/yr. 67. Deccan Cements, 1.79Mt/yr. 68. Encore Cement & Additives, 0.40Mt/yr. (Grinding). 69. Green Valley Industries, 1.0Mt/yr. 70. Gujarat Sidhee Cement, 1.2Mt/yr. 71. HeidelbergCement India, 0.6Mt/yr. 72. HeidelbergCement India,1.0Mt/yr. 73. HeidelbergCement India, 1.0Mt/yr. (Grinding). 74. HeidelbergCement India, 0.5Mt/yr. (Grinding). 75. Hills Cement Company, 1.0Mt/yr. 76. The India Cements, 1.1Mt/yr. (Grinding). 77. The India Cements, 1.4Mt/yr. 78. The India Cements, 1.85Mt/yr. 79. The India Cements, 2.8Mt/yr. 80. The India Cements, 1.1Mt/yr. (Grinding). 81. The India Cements, 0.86Mt/yr. (Grinding). 82. The India Cements, 2.1Mt/yr. 117 83. The India Cements, 3.5Mt/yr. 84. The India Cements, 0.73Mt/yr. 98 85. Jaiprakash Associates, 2.5Mt/yr. (Grinding). 86. Jaiprakash Associates, 0.5Mt/yr. 87. Jaiprakash Associates, 1.0Mt/yr. (Grinding). 88. Jaiprakash Associates, 2.2Mt/yr. 89. Jaiprakash Associates, 2.4Mt/yr. 90. Jaiprakash Associates, 2.0Mt/yr. 91. Jaiprakash Associates, 1.5Mt/yr. (Grinding). 18,180 92. Jaiprakash Associates, 3.2Mt/yr. 162 93. Jaiprakash Associates, 1.2Mt/yr. (Grinding). 94. Jaiprakash Associates, 0.6Mt/yr. (Grinding). 95. Jaiprakash Associates, 2.0Mt/yr. 96. Jaiprakash Associates, 1.0Mt/yr. (Grinding). 97. Jaiprakash Associates, 2.4Mt/yr. (Grinding). 101 159 98. Jammu & Kashmir Cements, 0.4Mt/yr. 99. Jaypee Cement, 1.0Mt/yr. 158 42 100. Jaypee Cement, 0.60Mt/yr. 188 197 101. JK Cement, 0.47Mt/yr. 102. JK Cement, 0.75Mt/yr. 25 103. JK Cement, 3.0Mt/yr. 157,161 104. JK Cement, 3.3Mt/yr. 105. JK Lakshmi Cement, 41,107 102 9,66,133 0.6Mt/yr. (Grinding). 43 104 106. JK Lakshmi Cement, 155,164,89 175 195 0.6Mt/yr. (Grinding). 107. JK Lakshmi Cement, 4.2Mt/yr. 174 108. JSW Cement, 4.5Mt/yr. 106 171 163 109. JSW Cement, 0.70Mt/yr. 110. JUD Cement, 0.50Mt/yr. 97 111. Kalyanpur Cements, 1.0Mt/yr. 156 112. The KCP, 0.7Mt/yr. 183 113. The KCP, 1.52Mt/yr. 16,70 23,189 114. Keerthi Industries, 0.6Mt/yr. 186 115. Kesoram Industries, 1.5Mt/yr. 3,19,57, 116. Kesoram Industries, 5.8Mt/yr. 136,179 117. Khyber Industries, 0.4Mt/yr. 118. Lafarge India, 1.6Mt/yr. 115,132, 119. Lafarge India, 4.6Mt/yr. (Grinding). 80,144 143 120. Lafarge India, 1.0Mt/yr. (Grinding). 73 121. Lafarge India, 0.6Mt/yr. 122. Madras Cement, 3.1Mt/yr. 185 14,62, 123. Madras Cement, 4.0Mt/yr. 124. Madras Cement, 0.5Mt/yr. (Grinding). 100,116 192 191,198 125. Madras Cement, 3.65Mt/yr. 126. Madras Cement, 1.0Mt/yr. 83,200,148, 127. Madras Cement, 0.29Mt/yr. 114,140,137, 128. Madras Cement, 1.5Mt/yr. 153,154,168 129. Madras Cement, 0.50Mt/yr. (Grinding). 79,150 130. Malabar Cement, 0.20Mt/yr. (Grinding). 32,67 38 131. Malabar Cement, 0.42Mt/yr. 103,182 132. Mancherial Cement, 0.3Mt/yr. 34 108,145 133. Managalam Cement, 1Mt/yr. 7,109 166,152 134. Megha Technical & Engineers, 0.5Mt/yr. 135. Meghalaya Cements Limited, 0.5Mt/yr 36,65,77,147 136. Murli Industries, 3.0Mt/yr. 127 201,84,177,149 137. My Home Industries, 3.2Mt/yr. 138. My Home Industries, 2.0Mt/yr (Grinding). 71 139. NCL Industries, 1.0Mt/yr. (Grinding). 140. NCL Industries, 2.0Mt/yr. 141. OCL India, 1.4Mt/yr. (Grinding). 178 199 124 142. OCL India, 4.0Mt/yr. 143. Orient Cement, 3.0Mt/yr. 144. Orient Cement, 2.0Mt/yr. (Grinding). 145. Panyam Cement & Minerals, 1.4Mt/yr. 10 81,129 146. Parasakti Cement Industries,1.7Mt/yr. 131 147. Penna Cement Industries, 2.0Mt/yr. 59,60,61,64,78, 122,123,170,194 148. Penna Cement Industries, 1.2Mt/yr. 149. Penna Cement Industries, 1.8Mt/yr. 150. Penna Cement Industries, 2.0Mt/yr. 130 151. Prism Cement, 6.1Mt/yr. 128,169 152. Rain Cements, 2.2Mt/yr.

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153. Rain Cements, 1.0Mt/yr. 154. Sagar Cements, 2.7Mt/yr. 155. Sanghi Industries, 3.0Mt/yr. 156. Saurashtra Cement, 1.5Mt/yr. 157. Shree Cement, 3.0Mt/yr 158. Shree Cement, 1.50Mt/yr. (Grinding). 159. Shree Cement, 3.0Mt/yr. (Grinding). 160. Shree Cement, 1.8Mt/yr. (Grinding). 161. Shree Cement, 3.0Mt/yr. 162. Shree Cement, 1.2Mt/yr. (Grinding). 163. Shree Digvijay Cement, 1.3Mt/yr. 164. Sparta Cements & Infra, 1.0Mt/yr. 165. Sree Jayajothi Cements, 3.2Mt/yr. 166. Sri Chakra Cements, 0.3Mt/yr. (Grinding). 167. Sri Chakra Cements, 0.7Mt/yr. 168. Sri Lalita Cement Industries, 1.0Mt/yr. 169. Tamilnadu Cements Corp, 0.4Mt/yr. 170. Tamilnadu Cements Corp, 0.5Mt/yr. 171. Tata Chemicals, 0.44Mt/yr. 172. Toshali Cement, 0.24Mt/yr. 173. Toshali Cement, 0.15Mt/yr. (Grinding). 174. Trinetra Cement Limited, 1.8Mt/yr. 175. Ultratech Cement, 5.0Mt/yr. 176. Ultratech Cement, 1.3Mt/yr. 177. Ultratech Cement, 5.6Mt/yr. 178. Ultratech Cement, 1.1Mt/yr. (Grinding). 179. Ultratech Cement, 3.6Mt/yr. 180. Ultratech Cement, 1.8Mt/yr. (Grinding). 181. Ultratech Cement, 1.3Mt/yr. (Grinding). 182. Ultratech Cement, 1.3Mt/yr. (Grinding). 183. Ultratech Cement, 5.8Mt/yr. 184. Ultratech Cement, 1.9Mt/yr. 185. Ultratech Cement, 1.8Mt/yr. 186. Ultratech Cement, 0.5Mt/yr. 187. Ultratech Cement, 1.0Mt/yr. (Grinding). 188. Ultratech Cement, 3.10Mt/yr. 189. Ultratech Cement, 0.70Mt/yr. (Grinding). 190. Ultratech Cement, 1.3Mt/yr. (Grinding). 191. Ultratech Cement, 3.2Mt/yr. 192. Ultratech Cement, 0.4Mt/yr. (Grinding). 193. Ultratech Cement, 2.5Mt/yr. 194. Ultratech Cement, 1.4Mt/yr. 195. Ultratech Cement, 3.0Mt/yr. 196. Ultratech Cement, 1.2Mt/yr. 197. Ultratech Cement, 0.6Mt/yr. 198. Vicat Sagar Cement, 2.8Mt/yr. 199. Zuari Cement, 1.0Mt/yr. (Grinding). 200. Zuari Cement,1.4Mt/yr. 201. Zuari Cement, 3.80Mt/yr.

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Left - Figure 4: Map of India with major cities, cement facilities and neighbouring territories and areas of water. 5

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Cement industry - Consumption by use

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Between 2006 and 2011 inclusive cement consumption in India was dominated by residential real-estate construction to the tune of 63%.6 The second largest type of use over the period was infrastructure, which accounted for 20% of all cement used, followed by commercial real-estate construction (13%) and industrial construction (4%).

Industrial 4%
GDP (PPP) (2011)1 76 GDP/capita (2011 est.)1 Population (July 2012)1 Area1 Integrated plants5 Integrated capacity5 Grinding plants5 Grinding capacity5 TOTAL CAPACITY5 US$4.42bn US$3700 1205.1m 3,287,263km2 146 302Mt/yr 55 63.5Mt/yr 365.5Mt/yr

13% Commercial Residential 63% Infrastructure 20%

Left - Figure 5: Breakdown of cement use by sector for 2006 - 2011.6

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Cement industry - Events in 2012 8-9
The Indian cement industry grew by 4.4% in 20118 and throughout 2012 significant cement capacity continued to come on stream in India. Numerous new projects were announced or mooted throughout the year, despite January 2012 reports that the industry was operating at as low as 65% of capacity.9 At the time cement companyies blamed a decrease in government infrastructure spending in major cities. In February 2012 Fitch Ratings announced that it had downgraded its outlook for the Indian cement industry to negative, with a growth forecast of 2-5% in 2012. While large by the standards of some cement industries around the world, such a level would represent disappointment relative to recent growth rates in India. Despite this, the 310 310 same month JK Cements announced 300 300 plans to double its capacity to 9Mt/yr by 31 March 2013. It expects another new 290 290 plant to commission by autumn 2013. 280 Also in February 2012, Dalmia 280 Cement Bharat Ltd expanded by pur270 270 chasing a 50% stake in Calcom Cement India, a local producer in Assam that 260 260 commissioned later that year. Addi250 tionally, German-based vertical roller 250 mill producer Loesche GmbH held its 240 240 first Round Table in India between 28 1 February 2012 and 1 March 2012. In March 2012 various Indian cement producers were able to report improved financial performances for the three months to the end of 2011, among them ACC, JK Lakshmi Cement, Kakatiya Cement Sugar & Industries, Chettinad Cement and Ambuja Cement. Several producers identified higher selling prices as a driver for improved revenues and hence profits but were also keen to point out that fuel costs were on an upward trend, a theme that would become common through the rest of 2012. Chettinad Cement announced the imminent commissioning of its new US$184m, 2.5Mt/yr plant in Karnataka at the start of March 2012 and also announced a US$305m expansion in Andhra Pradesh as part of plans to expand its capacity to 7.5Mt/yr in both states. April 2012 saw the announcement of the Indian Union Budget for 2012-2013. This was seen by many at the time as a mixed bag for cement producers,
All India cement price (INR/50kg) Dec 2011

promising increased infrastructure spending but also increased taxes and tariffs on cement that would increase consumer prices. Coupled to increases in rail freight costs, that came into effect on 6 March 2012, the budget was seen as broadly neutral from the perspective of cement. Also in April 2012 the Cement Manufacturers Association (CMA) called for urgent action to reduce the aforementioned rail costs. It warned that prices to consumers would rise if the rates for freight were not eased, which could, in turn, dampen demand. ACC informed the industry that it intended to increase its capacity by setting up a 4Mt/yr cement plant at Jamul in Chattisgarh as well as grinding units
20 15 Month-on-month change (%)
10 10

Right - Figure 6: Cement prices in India in Indian Rupees, December 2011 to October 2012 and month-onmonth change (%).10 Prices rose significantly relative to 2011 during the first 10 months of 2012. INR 1 = US$0.0186 US$1 = INR53.65 (Conversion accurate as at 26 January 2013) Mean price of 50kg bag over period of graph: INR288 = US$5.36.

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Below: Construction of the My Home Industries cement plant at Mulakalapalli, Andhra Pradesh started in 2009. It features a state-of-the-art vertical roller mill from Loesche for the manufacture of blended cements. Source: P Sreedhar, entrant in the 2013 Global Cement Photography Competition.

at Sindri and Kharagpur. It announced the planned closure of its existing Jamul plant at the same time. Lafarge also announced its intention to purchase further Indian assets in the future, although it did not specify any targets at the time. A number of first quarter results were reported by the industry in May 2012. ACC saw an increase of 19% in its income, Ultratech saw a 19% improvement in profit due to higher sales but Ambuja Cements reported a fall in its net profit despite higher sales. May saw a warning that despatches in India could decline over the middle part of 2012, according to the Cement Stockists and Dealers Association of Bombay. It warned that power and freight costs could rise by as much as 13% through the remainder of the year. The month also saw a fine in Himachal Pradesh for Jaiprakash Associates for environmental violations.

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Further mixed financial reports came in in June 2012, with Shree Cement reporting a 74% increase in net profit, much of which it attributed to better use of its capacity as well as expanded capacity. However, the company warned that its 30% production increase, from 25.7Mt to 33.5Mt in the 12 months to 31 March 2012, would be very hard to repeat in the 2013 fiscal year. June 2012 also saw in principle agreements for JK Cement and Shivashankar Minerals to build plants in two separate states. On 21 June 2012 the CCI said that the cement companies action of limiting supplies to the market through an anti-competitive agreement was not only detrimental to consumers but also to the economy, as the building material is a critical input for infrastructure projects. The regulator asked the companies to pay the fine within 90 days. However, the companies challenged the regulators orders in the Competition Appellate Tribunal, a quasi-judicial body and can appeal to Indias Supreme Court. In response to the initial complaints, Ultratech said that it had not indulged in any cartelisation. In Zurich Holcim said that it would, Contest the allegations and findings against (ACC and Ambuja) in the order and will pursue all available legal steps to defend their respective positions. In Paris Lafarge said, We will see the detailed report and decide the suitable actions to take. Lafarge has a strict policy to comply with competition laws.

Cement industry - US$1.1bn fine from CCI

With relatively high barriers to entry, captive customers, relatively little product differentiation and no materials that can properly substitute for cement, the industry is inherently prone to low competition. This can lead to cartel-like practices or full-blown collusion between rival producers. With this in mind, the most significant news for the Indian cement industry in 2012 also came in June, when 11 cement manufacturing companies were fined a collective US$1.1bn for alleged price-fixing by the Competition Commission of India (CCI).11 In one of the largest ever fines of its kind, the authority named ACC and Ambuja Cements, Ultratech Cement, Jaiprakash Associates, India Cements, Madras Cements and the local unit of Frances Lafarge among 11 major producers. The commission has found that the cement companies have not utilised the available capacity, so as to reduce supplies and raise prices in times of higher demand, said the CCI in its judgement at the time. It said that the penalty on each company would amount to 50% of their profit for the financial years 2009-10 and 2010-11, although each company has so far maintained that it was not guilty of any unfair practice. ACC was fined US$201m and Ambuja was told to pay US$204m. Indias largest producer, Ultratech Cement, has to pay US$206m, while Lafarges Indian unit will have to shell out US$84m. Jaiprakash Associates has been fined US$232m.

Cement industry - More expansion9

Even as the CCI ruling was made, cement companies continued to announce development plans for new capacity in India, the consequence of a constant desire by cement company boards to maintain a companys market share in a market with increasing demand. In June and July 2012, India Cements was given the environmental go-ahead to expand at two sites, Murli Industries was investigating sites for a 3Mt/yr plant in Karnataka and Ultratech secured a limestone mine expansion in Gujarat. ACC was reportedly talking about a US$900m, 5Mt/yr clinker-making complex in Andhra Pradesh with a total cement capacity of 8Mt/yr! By August 2012, the Indian government attempted to get in on the industrys expansion by restarting the sale of six cement plants that had previously been closed by the Cement Corporation of India over 10 years before. Advertised as ready-made capacity the sale has not yet attracted any bidders as far as Global Cement can ascertain, presumably due to the relative age of the plants and commitments to new capacity by the major players. Projects announced at the same time included two plants being planned by Emmami Cement and ABGs announcement of two new plants for 2014. However, it was becoming clear come August, 2012 that fuel was playing an increasingly important role in plant profitability. Birla Corp. said that higher coal and freight prices caused a 24% drop in profitability year-on-year in the quarter ending 30 June 2012 and Ultratech was threatened with a loss of coal reserves by Coal India. The fuel situation worsened in September and October 2012 as diesel price rises further

Below: Ultratech Cements Aditya Cement Works in Rajasthan. Source: Rajesh Kumar, entrant in the 2012 Global Cement Photography Competition.

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Ultratech Cements profit nearly doubled over the same timeframe, after it recorded a strong pick-up in demand. Meanwhile Shree Cement was putting its money where its mouth was by ordering a number of vertical roller mills from Germanys Gebr. Pfeiffer. The mills will be installed at the companys Rajasthan plant as part of an eighth production line at the facility. November 2012 also saw a cement dealers strike in Kerala. In December 2012 India Cements reported on plans to expand one of its plants in Tamilnadu with a 3Mt/yr addition. In Bengal, Ultratech and ACC received permits to proceed with investments at Hooghly and Kharagpur respectively. JK Lakshmi announced plans to invest US$365m in its expansion plans and announced that work on its Durg, Chhattisgarh, plant would start in early 2013. JSW Cement announced the commissioning of more grinding capacity for March 2013. Financial reports saw Jaiprakash Associates cement interests save an otherwise poor performance for the quarter to 30 September 2012 and Mangalam Cement reported a net profit of US$5.2m for same period. So far in 2013 the busy Indian cement industry shows few signs of slowing down. Irelands CRH has been linked to Shree Jayajothi Cements and it was reported that McNally Bharat had won its first ever EPC contract in the cement sector from ACC.

Above: IBAU Hamburg delivered a road-mobile ship unloader to Sanghi Industries for its Mumbai Cement Terminal in 2012.

contributed to a sudden 15% freight cost increase by the All India Motor Transport Congress. Cement producers claimed that they would be unable to absorb the increases, which, for many, affected raw material movement and coal supplies as well as distribution. At the same time three cement companies lost allocated coal reserves after an inter-ministerial panel recommended cancellation of a number of blocks. ACC also came under fire from locals near to its plant in Orissa, when they accused it of mismanagement of its fly-ash stocks. Good news in the autumn came from Shree Cement, which continued with its run of sky-high profit increases, this time an unlikely-to-be-repeated 539% year-on-year increase. Shree did not comment on the cause of the disparity but it is thought likely that the year-ago period featured a large nonoperating cost. Ultratech restated its intent to enlarge its cement capacity in September 2012, with the announcement that it aimed to hit 62Mt/yr by April 2013. Ultratech chairman Kumar Mangalam Birla acknowleged that the short-term sector remained challenging. At the time Ultratech was in talks with debt-laden Jaiprakash Associates regarding the acquisition of the latters plants in west and southern India. A plethora of Indian cement results in the October and November 2012 issues of Global Cement Magazine showed a mixture of profits and losses. Mangalam Cement saw a 135% improvement in its net profit, albeit to just US$4.9m, whereas Anjani Portland Cement reported a 62% year-on-year drop for the quarter ending 30 June 2012. HeidelbergCement India reported a turn around from a loss in 2011 to a profit in 2012, as did Everest Industries, which produces a variety of cement-based materials. The results contined in the third quarter of 2012, with Ambuja Cement reporting a 77% year-onyear improvement in its net profit for the quarter.

Cement industry - Future forecasts

Given the rampant growth of the Indian cement industry, few are betting against continued capacity additions in the short- to medium-term. The extent of capacity addition, however, and whether or not demand will rise to match it more closely than at present, is up for debate. In November 2012 the India Brand Equity Foundation (IBEF) said that it expected double-digit growth in the cement industry for the 2013 and 2014 fiscal years, which end on 31 March 2013 and 31 March 2014 respectively.12 It reported that the cement industry would increase production by around 71Mt/yr over the same time-frame to reach over 300Mt/yr in 2014. Meanwhile, the Indian Governments 12th Five-Year Plan, which runs for 2013 to 2017, states that India will require a cement capacity in the region of 480Mt/yr by the end of 2017.12 It states that a further 150Mt/yr of capacity will be required to accomplish this. Separately, ACC expects India to have a capacity of 500Mt/yr by 2020.13 This represents more than twice the cement that India currently consumes in a year and so it is worth asking, if this capacity is reached, what will the capacity utilisation rate be? The government promises significant investment in infrastructure, although bureaucracy has hampered such investments in the past.

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Land acquisition is a big issue, said H 150 M Bangur, chairman and managing director of north-based Shree Cement, in August 400 2012. No state government is providing land to set up units. Greenfield expansion 350 is tough. Sunil Singhania, equity head at Reliance 300 Mutual Fund, said, Capacity creation in India is very difficult because there is no 250 land (in some places) and no limestone deposits at others. Several cement companies 200 have written down assets. I believe capacity additions going forward will not be as aggressive as in the past. Expansion will be slower than demand growth. With prices remaining low due to overcapacity and low demand, the potential for future collusion between producers and the difficulty of setting up new capacity, it is possible that producers, under pressure to meet the expectations placed on them by the Five-Year Plan, will see increased pressure on margins in the next few years, especially if fuel prices continue to rise. In the midst of this, smaller companies are likely to suffer more than most, possibly making them acquisition targets for better-equipped multinationals. Indeed, in January 2013 Prism Cement, one of Indias smaller cement producers, actually reported a net loss for the quarter to 31 December 2012.14 It cited low demand, high fuel costs and increased electricity prices. How long can such producers continue as the Ultratechs, ACCs and Ambujas of this world keep adding new capacity? An academic report carried out for the Competition Commision of India in 2012 hints at this possibility of future consolidation in the industry .6 The study found that, despite capacity utilisation falling across all cement producers in India from 2006 to 2011, it was those with the smallest market share that experienced by far the worst reduction. Binani Cement, for example, recorded utilisation rates of only around 55-60%. Conversely mega-players like Ultratech have been more stable, with rates of 80-95%. In January 2013 India Ratings reported that smaller businesses were less likely to benefit from the expected improvement in the industry.15 A major reason behind this phenomenon is rising fuel costs, which have hit producers from two directions in the past year. Firstly, demand for power in India is high and domestic fuels are dedicated predominantly to electrical generation. Industrial companies are forced, in many cases, to import costly foreign fuel, which must be shipped inland to be used. A second effect of increased fuel prices is that cement is more costly to tranport once it has left the factory. Due to their size allowing greater economies of scale, larger cement companies are better positioned to import fuel on a large scale and are more likely to have flexible vehicle fleets to respond as demand fluctuates in different areas. Another crucial difference between the larger and smaller companies is that larger
Amount of cement (Mt) 100 95 85 80 75 70 65 60 55 2011 2012 2013 2014 2015 2016 50 Capacity utilisation rate (%) 90

Left - Figure 7: An ACC report forecasts increasing capacity (red), production (blue) and capacity utilisation (green) in 2013 - 2016.13

players are more likely to have a pan-Indian presence. This enables them to ride-out periods of difficulty in one area while maximising margins elsewhere. Local producers do not have this luxury. They do not even have the option to move into supplying bagged cement because 98% of cement in India is sold in bags.13 Smaller local producers are less well equipped to deal with expansion and their relative size will gradually diminish compared to the top 12 producers. As this happens, it is likely that they will become the acquisition targets of the larger firms.

Cement industry - Conclusion

The Indian cement industry is large, growing and, with consumption of just 185kg/capita/yr in 201113 (compared to global average of ~300kg/capita/yr) the country itself has the capacity to demand significantly more cement as it develops. However, the industry is at a tricky point in its development. Capacity is way ahead of actual consumption yet producers, keen to not be left behind, expand to secure future demand. Producers in this situation should bear in mind the Indian cement industry of the early 20th Century, when companies expanded, lowered prices and, in many cases, went out of business. Some have cautioned against rapid capacity addition in the coming years.16 It is foreseeable that the Indian cement industry will see consolidation over the coming years. Producers that can differentiate their cement from others or can make savings on production costs by, for example, using alternative fuels, will be able to take advantage of increasing demand while remaining ahead of their competitors.

References
1. CIA World Factbook, India, https://www.cia.gov/library/publications/the-world-factbook/geos/in.html. 2. World Bank Indicators website, GDP per capita (current US$), http://data.worldbank.org/indicator/NY.GDP.PCAP.CD. 3. United States Geological Survey, Various Reports, http://minerals. usgs.gov/minerals/pubs/country/asia.html#in. 4. Cement Manufacturers Association website, Historical Development, http://www.cmaindia.org/portal/static/DynamicHistory.aspx 5. Global Cement Directory 2013, PRo Publications International Ltd., Epsom, UK, November 2012. 6-16. See online article, http://www.globalcement.com/articles.

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