Microeconomics Assignment-

Cement Industry
Team Members:
Shahnawaz Kalawat 23
Pranav Patil 36
Shamala Prabhu 38
Harsh Shah 43
Riyali Tanwani 45
Vaibhavi Thakur - 46

Submitted To:

Prof. Suniti Nagpurkar

10/5/2016
 INTRODUCTION

The Cement Industry is important for the development of any economy. Industrialization of an
economy is supported by the growth of this industry as there is an increase in cement consumption,
driving up the demand for cement, and therefore giving a boost to this industry. A nations GDP
(Gross Domestic Product) is used as a forecaster of cement consumption in that nation.

Cement is indispensable for building and construction work and cement industry is considered to be an
important infrastructure core industry.

The main drivers of the cement industry are

Housing Sector

Infrastructure development

Transportation sector

TYPES OF CEMENT

Typically, Cement can be classified into:

Portland Cement:

This is the most common type of cement in general usage, as it is a basic ingredient of concrete.

Portland cement is manufactured by burning a finely ground mixture of lime, silica, alumina and iron
oxide at a very high temperature to form clinker. The clinker is then ground to a fine powder with the
addition of gypsum (up to 5%). Portland cement consists of tricalcium silicate, dicalcium silicate,
tricalcium aluminate and tetracalcium aluminoferrite.

There are different types of Portland cement, which differ in property and chemical composition.
However, the manufacturing process remains the same.

Ordinary Portland cement (OPC)

Moderate heat Portland cement (MHPC)
Rapid hardening cement (RHC)
Sulphate-resistant cement (SRC)
Oil well cement (OWC)

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 White cement

Blended Cement:

In order to produce blended cement, certain natural or fabricated compounds such as fly ash, slag and
sandstone are mixed with Portland cement clinker and ground finely.

This cement is used for large concrete works, such as dams and piers. Blended cement minimises the risk
of developing contraction cracks on account of the lower heat of hydration. The different types of blended
cements are:

Portland blast furnace slag cement (PBFSC)

Portland pozzolona cement (PPC)
Product mix - Shift from OPC to PPC

Speciality Cement:

Speciality cements have several special properties and are used in specific applications.

Expansive cement/shrinkage compensated cement: Concrete prepared from Portland cement or

blended cement, shrinks on setting and hardening. Cement should expand on setting and
hardening when it is used for pre-stressed, pre-fabricated concrete products and as a grout for
filling cracks.
Super-high strength cement: This cement is used for urgent repairs to important concrete
structures, such as foundation pillars.
Alinite cement

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 COST STRUCTURE

The major costs associated with cement production are:

Power and fuel:

The cement industry is power-intensive, with power and fuel cost accounting for 25-30% of the total cost
of sales of cement players. Coal is used to fire the kiln as well as to generate power for grinding the
clinker. The power requirement of cement plants varies in accordance with the heat treatment process
used viz., dry process or wet process. While the wet process requires 1,300-1,600 kcal/kg of clinker and
110-115 kWh of power to manufacture 1 tonne of cement, the dry process requires 720-990 kcal/kg of
clinker and 95-110 kWh of power.

The Indian cement industry primarily uses fuels such as coal, petcoke and lignite to fulfill its fuel
requirement. The government allocates specific quotas for coal, on a sector-wise basis. However, such
receipts prove insufficient for the cement industry leading the players to resort to the open market for
meeting their incremental fuel requirements. In our country, coal is primarily allocated to power and steel
sectors; the cement industry only gets 3-4% of the country's total production. Therefore, in the last few
years, players have been importing a significant proportion of their coal requirement from other countries.

Raw material:

Raw material cost accounts for 20-25% of the cost of sales of cement players. Limestone comprises a
major share of this cost. Cement plants are generally located near limestone quarries as limestone cannot
be transported over long distances. Limestone is essentially found in 10 clusters viz., Satna, Gulbarga,
Chandrapur, Bilaspur, Chanderia, Nalgonda, Yerraguntla, Saurashtra, Himachal Pradesh and
Thiruchirapalli. Limestone availability is largely confined to its cluster regions. Moreover, limestone is
considerably bulky in nature. So, it does not make economical sense to transport it over long distances.

Other raw materials used in the cement industry include fly ash, slag, gypsum, etc. Gypsum is available as
a natural product and is also derived from sea water and chemical plants. It is mostly found in Rajasthan
(which accounts for more than 80%) followed by Jammu & Kashmir (which accounts for around 15%). A
small portion of 5% is found in states such as Tamil Nadu, Gujarat, Himachal Pradesh, Karnataka,
Uttarakhand, Andhra Pradesh and Madhya Pradesh. Gypsum from Rajasthan is dispatched to cement
plants in India spread across Rajasthan, Gujarat, Madhya Pradesh, West Bengal, Uttar Pradesh, Bihar,
Jharkhand, Chhattisgarh, Himachal Pradesh, etc. In terms of proportion, gypsum would account for 4-5%

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 of a tonne of cement. Fly ash is a fine, glass-like powder recovered from gases created by coal-fired
electric power generation. It primarily consists of silica, alumina and iron. As per the BIS standard for
Portland pozzolona cement, fly ash can account for 10-25% of the cement mass, while the BIS standard
for slag cement ( Portland blast furnace slag cement) allows slag to comprise 25-65% of the cement mass.
About 32% of fly ash is used in the cement industry. Slag is a by-product of the steel-making process,
produced during the separation of molten steel from impurities in steel-making furnaces. It is used in
cement manufacturing. The availability of slag in India is limited and is found mostly in the East due to
the concentration of steel plants in the region. Both flyash and slag are used as additives in the production
of blended cement.

Selling Expenses:

As cement is a low-value, high-volume commodity, freight costs constitute a significant proportion at 20-
25% of the total cost of sales. There are three major modes of transport used by the cement industry -
road, rail and sea. Rail is the preferred mode of transport for long-distance transportation owing to lower
freight cost. However, the availability of wagons and the extent of last-mile connectivity need to be taken
into consideration. Road transportation is beneficial for short distances and bulk transportation as it
minimises secondary handling and secondary freight costs. Presently, almost equal proportions of cement
are dispatched by rail and road. Transportation by sea is the cheapest mode. However, only coastal
players can take advantage of this mode as they can transport clinker and cement more economically
within the country and to other regions as well. Hence, a very small proportion of the cement is
transported by the sea route. In order to control freight costs, companies try to strategically locate plants
close to raw material sources and end-user segments by opting for split location units.

Other expenses:

Other expenses include employee cost, administration expenses, repair and maintenance charges, etc.
These account for 15-20% of the cost of sales.

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 THE INDIAN CEMENT INDUSTRY

The Indian Cement Industry is the second largest in the world, after China. It is one of the booming
and most advanced industries in the Indian Economy, accounting for about 8% of the total global
production. Government of India has been giving immense boost to various infrastructure projects,
housing facilities and road networks, the cement industry in India is currently growing at an
enviable pace.

In a developing country like India, the cement industry can play a significant role in the overall economic
growth.

The housing sector is the biggest demand driver of cement, accounting for about 67 per cent of the total
consumption in India. The other major consumers of cement include infrastructure at 13 per cent,
commercial construction at 11 per cent and industrial construction at nine per cent.

Current Scenario

The Indian Cement Industry has an installed capacity of Rs. 72 million tonnes per annum while domestic
consumption of cement in 2015 was ~271 million tonnes. As already indicated, cement consumption grew
at the rate of 2% in the calendar year 2015, the slowest rate of growth in a
decade. As a result, the cement market in the country remained very competitive.

The Indian Cement Industry is the second largest in the world, after China. It is one of the booming and
most advanced industries in the Indian Economy, accounting for about 8% of the total global production.
Government of India has been giving immense boost to various infrastructure projects, housing facilities
and road networks, the cement industry in India is currently growing at an enviable pace. In a developing
country like India, the cement industry can play a significant role in the overall economic growth. The
housing sector is the biggest demand driver of cement, accounting for about 67 per cent of the total
consumption in India. The other major consumers of cement include infrastructure at 13 per cent,
commercial construction at 11 % and industrial construction at 9 %.

Consistent with the positive outlook for the Indian economy, we foresee a similar revival in demand for
cement and concrete. Signs of increased construction activity have been witnessed in industrial and
commercial segments as well as from mass housing and mid-income housing schemes across the country.
Besides this, there are healthy indicators of an uptrend in demand for cement and concrete from projects

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 such as concrete roads, flyovers & bridges, power plants, irrigation schemes, ports, railways and metro
rail-projects.

Overall cement demand in the calendar year 2016 is estimated to grow at a rate faster than the preceding
year, if supported by a faster pace of infrastructure development, housing and industrial growth.
Consumption could pick up well beyond 6% if investments in infrastructure development and ambitious
projects such as Make in India, Smart Cities Mission, Atal Mission for Rejuvenation & Urban
Transformation (AMRUT), and Housing For All (including low cost housing) are accelerated. Demand in
the housing sector may be stimulated with a gradual reduction in interest rates, wider supply of affordable
housing, tax benefits and an increase in disposable incomes and household savings.

Cement Industry Performance

2015 2014 Change %

Production - million 23.84 24.24 -1.7

tonnes

Sales Volume - million 23.62 24.21 -2.4

tonnes

Net Sale Value (Rs,crore) 10,652.60 10,842.82 -1.8

Operating EBITDA 1,482.88 1,473.13 0.7

(crore)
Operating EBITDA 13.92 13.59

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 MARKET SIZE

With nearly 390 million tonnes (MT) of cement production capacity, India is the second largest cement
producer in the world and accounts for 6.7 per cent of worlds cement output. The cement production
capacity is estimated to touch 550 MT by FY 20. Of the total capacity, 98 per cent lies with the private
sector and the rest with the public sector. The top 20 companies account for around 70 per cent of the
total production.

A total of 188 large cement plants together account for 97 per cent of the total installed capacity in the
country, while 365 small plants make up the rest. Of the total 188 large cement plants in India, 77 are
located in the states of Andhra Pradesh, Rajasthan and Tamil Nadu. Indias cement production increased
at a compound annual growth rate (CAGR) of 6.7 per cent to 270.32 million tonnes over FY0715. As
per the 12th Five Year Plan, production is expected to reach 407 million tonnes by FY17.

The Government of India is strongly focused on infrastructure development to boost economic growth
and is aiming for 100 smart cities. It plans to increase investment in infrastructure to US$ 1 trillion in the
12th Five Year Plan (201217). The government also intends to expand the capacity of the railways and
the facilities for handling and storage to ease the transportation of cement and reduce transportation costs.
These measures would lead to increased construction activity thereby boosting cement demand.

Cement demand in India is expected to increase due to governments push for large infrastructure
projects, leading to 45 million tonnes (MT) of cement needed in the next three to four years#.

India's cement demand is expected to reach 550-600 Million Tonnes Per Annum (MTPA) by 2025. The
housing sector is the biggest demand driver of cement, accounting for about 67 per cent of the total
consumption in India. The other major consumers of cement include infrastructure at 13 per cent,
commercial construction at 11 per cent and industrial construction at 9 per cent.

To meet the rise in demand, cement companies are expected to add 56 MT capacity over the next three
years. The cement capacity in India may register a growth of eight per cent by next year end to 395 MT
from the current level of 366 MT. It may increase further to 421 MT by the end of 2017. The country's
per capita consumption stands at around 190 kg.

The Indian cement industry is dominated by a few companies. The top 20 cement companies account for
almost 70 per cent of the total cement production of the country. A total of 188 large cement plants
together account for 97 per cent of the total installed capacity in the country, with 365 small plants

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 account for the rest. Of these large cement plants, 77 are located in the states of Andhra Pradesh,
Rajasthan and Tamil Nadu

MARKET COMPETITION

Consolidation in cement industry The Indian cement industry can be categorized as a highly fragmented
industry with the presence of few large players and many small players. However, the top two players-
Holcim group and Aditya Birla group accounts for almost 34 per cent of the total market share.
Herfindahl - Hirschman Index (HHI) of an industry is an indicator of the extent of competition present in
the industry. HHI below 0.1 indicates perfect competition. HHI between 0.1 and 0.18 indicates moderate
competition and concentration within the industry. HHI above 0.18 indicates high concentration and less
competition within the industry. As of 2010-11, the HHI of the industry stands at 0.17, indicating
moderate concentration. Hence cement industry in India could be considered as Monopolistic
competition.

BARRIERS TO ENTRY

Indias top six cement companies control almost 50% of the domestic capacity, production, and market.
Leading the pack are Ultratech Cement (55+ MTPA capacity), ACC (30+) and Ambuja Cement (28+).
ACC and Ambuja are now owned by Swiss-based Holcim, which owns over 50% stake in each of these
companies.

Other key players in the market are Shree Cement (13+) and Ramco Cement (12+).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 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.

"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-

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 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. India's largest producer, Ultratech
Cement, has to pay US$206m, while Lafarge will have to shell out US$84m. Jaiprakash Associates has
been fined US$232m.

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 regulator's orders in the Competition
Appellate Tribunal, a quasi-judicial body and can appeal to India's 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.

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 IMPACT OF TECHNOLOGY (w.r.t Supply and Demand)

Brief:

Concrete recovery is achievable concrete can be crushed and reused as aggregate in new projects.

The cement industry has been looking at recycling concrete as a component of better business practice for
sustainable development. This report provides some background on the current state of play worldwide.
In some countries a near full recovery of concrete is achieved. Sustainability is the latest technological
shift in the industry for a greener cement for construction. Top method of making greener and stronger
cement is:

Use of Recycled content (like Fly Ash) upto 25% into cement & concrete

Fly ash is a waste by-product from the Coal industry thus bridging an alliance between coal and
cement industry.

Cement Can it be recycled?

About 5% to 20% of concrete is made up of cement.

Cement is made by crushing and blending limestone and Clay

Depending on the intended use, the ingredients in cement are varied indifferent products to improve
properties such as strength, setting time, workability, durability and color. Cement production also uses
recycled content such as slag and fly ash

Once concrete has been mixed, cement cannot be extracted from it for recycling. However, post-use or
waste concrete can be recycled through the cement manufacturing process in controlled amounts, either as
an alternative raw material to produce clinker or as an additional component when grinding clinker,
gypsum and other additives to cement.

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 Recycling Benefits:

Recycling concrete is not an end in itself. An assessment of the overall sustainable development benefits
of recycling concrete is needed. It is useful to place concrete in the context of the environmental impact of
other materials

1. Transportation costs including fuel usage 2. Noise, air and water pollution and the energy
and CO2 emissions
needs of the processing systems to recover the
- C&DW is often already located in an urban area concrete
close to or on the construction site whereas virgin
or use natural materials
materials are often sourced from more distant
quarries and natural areas - Systems for different materials can be compared

- Producing coarse aggregate will have less impact

than further refining; however, future use of the
aggregate has to be considered.

3. Land Use Impact 4. CO2 and greenhouse gases reduction due

to lesser carbon footprint while generation of
Using recycled aggregate means
recycled content cement.
- Less waste goes to landfill
Cement manufacturing makes a larger % of
- Less land is disturbed as virgin alternatives can greenhouse gases emissions which can be reduced
be conserved. by making use of greener additives

Economic benefits of using recycled concrete

1. Proximity and quantity of available natural aggregates

2. Reliability of supply, quality and quantity of C&DW

3. Public perceptions regarding the quality of recycled products

4. Government procurement incentives

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 5. Standards and regulations requiring different treatment for recycled aggregate compared to primary
material

6. Taxes and levies on natural aggregates and on landfill

7. The cost of sending waste to landfill can often be greater than the cost of sorting and selling concrete
waste from a construction site to a recycler

8. The cost of using demolition materials in a new construction on the same site can also be less than
that of new materials.

9. Recycling is less costly than procurement of fresh cement

10. Fly Ash additive is much cheaper than new generation of cement.

Emerging Technologies

1. Closed-cycle construction using mechanical and thermal energy - concrete rubble and masonry
debris are separated back into coarse and fi ne aggregates and cement stone using mechanical and
thermal energy supplied by the combustible fraction of C&DW.

2. Electrical decomposition of concrete - To break down concrete (or rocks), high shear stress is
needed by way of a shock wave.

3. Microwave - Microwave technology can also be used to crush cement

Parameters for Greener Cement:

The relative greenness of the Product/Process can be compared based on the progress achieved on the
following critical parameters:

Energy Efficiency

Water Conservation

Renewable Energy

Greenhouse Gas Emissions

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 Waste Management

Material Conservation Recycling and Reliability Material Conservation, Recycling and Reliability

Green Building & Bio-diversity

Economics

The cement industry has to cope with many economic factors including energy prices, green taxes,
production costs and market forces that ultimately affect how much a tonne of cement will cost

Technology & Demand & Supply:

Since mix of fly ash and other components make greener cement, benefits are abundant

Sighting lot of reduction in cost of procurement and investment cost along with no compromise in the
strength and durability of the structure, majorly all developers, civil contractors are moving towards green
cement alternatives and saving cost and reducing co2 emissions and making a win-win situation for
Developers & Environment

Demand from Green Buildings:

Green building sector in india is ever increasing in recent times.

Green building has mandatary criteria to fulfill with the use of cement with fly ash content upto 25% for
greener environment along with sturdiness

This diagram shows how blended cement in the cement industry holds a major stake of more than
65%+
Green Cement industry to grow with the forecast of 14.95% CAGR by year 2020
Green cement industry to occupy 13% of the overall cement market by year 2020

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 The demand for concrete is high, increasing and recognizes no
borders. This will continue to be the case for the foreseeable
future.

Top Players for supply in the market are:

1. Ultra Tech cement

2. ACC cement

3. Aditya Birla Cement

These companies hold the entire market share to meet supply needs

- Figure shows almost 45.95% Ready-Mix concrete is used in India which shows a major demand for
green recycled cement.

Technology & price:

Price of these cement alternatives are low as it uses recycled content vs virgin materials

Pricing generally differs by upto 30% from conventional bags of cement or concrete.

This has slight changes from state to state due to govt. taxes but always lower and efficient method

This price difference attracts more and more developers to produce green buildings and offer healthy
housing. Buyers in turn opt for better living due to benefits and low & efficient costing.

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