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Study of Future prospects of Cement Industry in Bengal

Technical Report · October 2016

DOI: 10.13140/RG.2.2.19786.98242

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Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-11, 2016
ISSN: 2454-1362, http://www.onlinejournal.in
Study of Future prospects of Cement
Industry in Bengal
Dr. Arijit Maity
Associate Professor, Budge Budge Institute of Technology
Abstract: In India there are new cement players
coming up especially in West Bengal. At present
there are a strong competition across West Bengal
and every player want to get volume and as well as
year to year increase in market share. The paper
intends to study on future prospects of Cement
Industry in West Bengal.
This paper develop a multivariate regression model
and in order to avoid the problem of autoregressive
and moving average the ARIMA (autoregressive
integrated moving average) model is considered for
prediction of growth rate of cement industry in
Bengal .
Key words: Cement, competition, demand, forecast,
planning etc.
1. Introduction
Cement is the preferred building material in India. It
is used extensively in household and industrial
construction unlike the west or the far east where
other materials of construction are also very popular.
This makes India a high potential market for cement.
Availability of cheaper building materials for non-
permanent structures affects the rural demand.
The Indian Cement Industry has achieved an
installed capacity of 242 million tonnes and is
targetted to reach 300 million tonnes by 2011-12 and
600 million by 2020. Despite having high demand in
India, our per capita cement consumption is very
low, where the world average is 396 kg, in India the
per capita consumption is only 156 kg. India being
the country of young population has a huge potential
consumption.
2. Literature review
The cement industry is concentrated mainly in those
States, where there are large deposits of limestone,
which is the main raw material for cement. Nearly 82
per cement of the capacity of large plants is located
in seven States. The distribution of capacity in
respect of large cement plants among these States as
on 31st March, 2000.
Imperial Journal of Interdisciplinary Research (IJIR)
3. Research Objective
To develop forecast model based on the annual
demand of cement in the West Bengal cement market
for existing players or new entrant (in the Market of
Indian Cement Industry) to know Market position
and to survive in the competitive market.
3.1. Research design/ Methodology
Understanding the Indian cement market requires a
primary research followed by extensive desk
research (secondary research).
Primary Research
Qualitative depth interviews would be ideal platform
for getting in-depth information from the Experts &
Opinion leaders. Identify Factors, which drive
cement demand. Secondary Research/Desk Research.
Regional differences in seasonality etc.
Secondary data: Published sources. Publications of
Universities and research institution. Publications of
commercial and financial institution. Reports on
committees and commissions. Publications from
Government.
4. Observation and Analysis
Primary Research
Qualitative Depth Interviews - Among the industry
Experts available in Government websites. It would
be ideal platform for getting in-depth information
from the Experts & Opinion leaders. The Expert
Profile:- Cement Manufacturers Association,
Officials in government departments/ministries and
Other experts. From there identify Factors, which
drive cement demand.
Secondary Research / Desk Research based on
the Demand scenario for each type of cement.
Regional differences in seasonality etc.
Identified Factors, which drive cement demand like:
• Endogenous Variables, Historical Data
• Exogenous Variables, Historical Data Like:
o Time Series:GDP trend in the states in
India
Page 1127
Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-11, 2016
ISSN: 2454-1362, http://www.onlinejournal.in

o Time Series: Real Gross Domestic Product This is a multivariate regression equation which is
in Indian states estimated by the least square method as follows
o Time Series: The average interest rate. β = ( X / X ) − / X /Y
o Time Series: Cement Sales and
In this model all t values are statistically significant
Consumption at 95% confidence interval as all values are greater
o Time Series: Real Investment in
than 1.64, except the variable Interest Rate.
Construction,
1. As investment on housing development in Indian
o Time Series: Real Personal Disposable not depend on bank loan and large portion of people
Income,
make their investment on their own saving
o Explicitly identify years in which a natural 2. Our capital market also not performing last few
calamity affected India severely year good enough
o Time Series: Consumer/ Wholesale price
3. Interest rate is too high and uncertainty. On the
Index basis of ANOVA values we can accept the model as
o Construction Data F values is also significant as it is above 3 at 95%
 New Private Housing Units -
level of significant.
Metropolitan Area and Other
Municipalities
 Number and Value of New Housing
Coefficients
Units
Model r square 0.637
 Total Investment in Construction
and Value of Construction Plans Variables Standardized T
Issued Coefficients
 Value of Construction Activity Constant 2.921 3.753
Growth rate of Per 0.139 4.699
Capita GDP
4.1. Findings Growth rate of Net 0.263 2.211
Domestic Saving
The contributing factors for designing forecast model Interest Rate 0.254 0.267
are as follows:-The present research will focus on Wholesale Price -0.860 -3.819
multivariate regression analysis to find out the Index-growth
relationship between growth rates of cement industry Index Numbers of 0.448 2.014
with the independent variables as Industries
-Growth rate of Per Capita GDP ( X 1 ), Table-1
-Growth rate of Net Domestic Saving ( X 2 ),
Dependent Variable: Index of cement industry
-Interest Rate ( X 3 ),
-Wholesale Price Index ( X 4 ), ANOVA
-Index Numbers of Industries ( X 5 ).
Sum of Degree Mean F Sig.
Based on the past twenty year’s secondary data in Squares of Square
India published by RBI we analyze the result by freedom
using SPSS. The purpose of this analysis is to find Regressi 116.66 5 23.334 3.744 .032
out a model that accurately establish the relationship on
among the variables and it is able to capture then a Residual 68.55 11 6.232
wide variety of realistic phenomena regarding the Total 185.22 16
uncertainty about the future risk and the predict the Table-2
future demand of cement in West Bengal. a Predictors: (Constant), Index Numbers of
Industries, Growth rate of Per Capita GDP, Interest
Empirical result The required regression equation is Rate, Growth rate of Net Domestic Saving,
written as: Wholesale Price Index-growth
Yi = β 0 + β1 X 1 + β 2 X 2 + β 3 X 3 + β 4 X 4 + β 5 X 5 + ε i
b. Dependent Variable: Index of cement industry
In this model yi is dependent variable (growth rate
of cement industry) which is solely depend on
Growth rate of Per Capita GDP ( X 1 ), Growth rate
of Net Domestic Saving ( X 2 ), Interest Rate
( X 3 ), Wholesale Price Index-growth ( X 4 ), Index
Numbers of Industries ( X 5 ) and error term ε i .

Imperial Journal of Interdisciplinary Research (IJIR) Page 1128

Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-11, 2016
ISSN: 2454-1362, http://www.onlinejournal.in
Histogram
Dependent Variable: Index of cement industry
6
5
4 Corr (Yt , Yt −1 ) =
3
2
Frequency
1
0 N = 17.00
-2.00 -1.50 -1.00 -.50 0.00 .50 1.00 1.50
Regression Standardized Residual
Figure-1: Regression standard residual histogram
Therefore the required regression equation can be
written as
Yi = 2.921 + 0.139 X 1 + 0.263 X 2 + 0.254 X 3 − 0.860 X 4 + 0.448 X 5
This paper has shown that the most significant
factors that drive the cement industry are Index
Numbers of Industries(X5), Wholesale Price Index-
growth(X4) and Growth rate of Net Domestic
Saving(X2) where as the interest rate is insignificant.
A negative relationship between wholesale price
index and growth of cement industry is also shown to
exits and it has been argued that in reality, inflation
create a bad impact on cement demand.
The influence of interest rate(X3) is insignificant in
Indian cement industry because of the non-existence
of local credit and large project of infrastructure are
working under the guideline of foreign institutional
investment (FII). However, interest rate has changed
the scenario of all small scale investors specially
housing loan where interest rate play a vital role in
decision making.
This is a basic multivariate regression model where
we do not consider the random walk model as well as
the stationary property of time series that is the
problem of moving average and autoregressive
problem. In order to avoid the problem of
autoregressive and moving average we consider the
ARIMA (autoregressive integrated moving average)
model for prediction of growth rate of cement
industry in India
AR –model is written as
Yt = ρYt −1 + ε t .
It can be shown
σ2
that E (Yt ) = 0 ; V (Yt ) =
(1 − ρ 2 )
Corr (Yt , Yt −1 ) = ρ 2 .
Imperial Journal of Interdisciplinary Research (IJIR)
MA-model is written as Yt = θε t −1 + ε t
It can be shown
that E (Yt ) = 0 ;V (Yt ) = σ 2 (1 + θ 2 ) ;
θ
(1 + θ 2 )
ARIMA model can be written as:
Yt = αxt + Yt −1 + ...... + Yt − p + ε t + ε t −1 + ...... + ε t −q
Std. Dev = .83
Mean = 0.00
We estimate the ARIMA model for the growth rate
of cement industry, where we apply Box-Jenkins
methodology for ARIMA (p, d, q) models with time
series data. In practical applications of B-J
procedure, the most difficult part is the decision on
the values of p, d, q. According to the Box- Jenkins
method we determine whether the series is stationary
or not by considering the graph of ACF. If a graph of
ACF of the time series values either cuts off fairly
quickly or dies down fairly quickly, then the time
series values should be considered stationary. If the
graph of ACF dies down extremely slowly, then the
time series values should be considered non-
stationary. If the series is not stationary, it can often
be converted to a stationary series by differencing. In
B-J procedure p and q can be determined by the ACF
and PACF. From the characteristics of the ACF, it
describes the correlation between the current states
of the time series with the past. Using ACF, we can
determine the moving average (MA) parameter’s
order q straight. From the characteristics of the
PACF, it describes the correlation between the
current states’ innovation of the time series with the
past. Using ACF, we can determine the auto-
regressive (AR) parameter’s order p directly. In such
model, we use maximum likelihood method (MLE)
to estimate the parameters. After estimate the model,
we should checked for adequacy by considering the
properties of the residuals whether the residuals from
an ARIMA model must has the normal distribution
and should be random. An overall check of model
adequacy is provided by the Ljung-Box Q statistics.
The test statistic Q is
∧
m
ρ2
Q = n( n + 1)∑
k =1 n−k
The model with the highest value of Q is preferred.
On the basis of Akaiki Information criteria and Ljung
–Box statistics, (where all t values for different
regression parameter are statistically significant) we
; can accept the ARIMA model for different
dependent variable such as: ARIMA (p= 2,q=0
,d=0) index of cement industry. It can be used for
Page 1129
Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-11, 2016
ISSN: 2454-1362, http://www.onlinejournal.in

predict the future trend on the basis of past data by Variables in the Model:
the following ARIMA model: B SEB T-RATIO APPROX. PROB.
AR1 .4163025 .27197608 -1.530658
Yt = αX t + Yt −1 + ...... + Yt − p + ε t + ε t −1 + ...... + ε t −q .14813276
The estimated ARIMA model can be written as AR2 -.0978452 .27504269 -.355745
follows: .72733450
Yt = 8.187 + 0.416Yt −1 − 0.097Yt −2 CONSTANT 8.1874769 .54786091 14.944444
.00000000
Table-3 Estimated model parameters of ARIMA (p=
Ljung –Box Q statistics - 2,q=0 ,d=0) index of cement industry
43.215484
Akaiki Information criteria 92.430967
Index of cement industry
Analysis of Variance: 1.0
DF Adj. Sum of Squares Residual
Variance
.5
Residuals 14 158.14329 11.186700
Variables in the Model:
0.0
B SEB T-RATIO APPROX. PROB.
AR1 -.2461522 .68668048 -.358467
.72534173 -.5
Partial ACF

Confidence Limits

MA1 .1594038 .69442659 .229547

.82176330 -1.0 Coefficient
1 3 5 7 9 11 13 15
CONSTANT 8.1888603 .56010044 14.620343 2 4 6 8 10 12 14

.00000000
Lag Number
Table-1 Estimated model parameters of ARIMA (p=
1,q=1 ,d=0) index of cement industry Figure 2: Partial Autocorrelation Function

Ljung –Box Q statistics - The analysis of partial auto-correlation function

43.311467 (PACF) depicted in figure 2 demonstrate that the
ARIMA model for index of cement industry to be
Akaiki Information criteria 94.622933
evaluated by (p=2, d=0, q=0) as PACF exhibits a
Analysis of Variance: peak much different than zero.
DF Adj. Sum of Squares Residual
Variance
Residuals 13 158.46723 11.773165 5. Findings
Variables in the Model: Estimated
B SEB T-RATIO APPROX. PROB. Year Actual growth Year Estimated
rate of cement growth rate
AR1 -1.4445826 .3518431 -4.105757 industry of cement
.0012970 industry
AR2 -.4454694 .3073261 -1.449500
.17089072 1994 8.8 2011 10.30
MA1 -.9890107 1.1547233 -.856492 1995 11.4 2012 11.70
.40723710 1996 9.6 2013 12.30
CONSTANT 8.2189425 .5838105 14.078100 1997 9.1 2014 12.20
.00000000 1998 5.7 2015 14.50
Table-2 Estimated model parameters of ARIMA (p= 1999 14.2 2016 13.05
2,q=1 ,d=0) index of cement industry 2000 5.9 2017 12.20
2001 7.4 2018 12.00
Ljung –Box Q statistics -43.185395 2002 8.8 2019 14.35
Akaiki Information criteria 92.37079 2003 6.5 2020 13.15
Analysis of Variance: 2004 6.6 2021 12.18
DF Adj. Sum of Squares Residual Variance 2005 12.4 2022 11.97
Residuals 14 157.59892 11.142118 2006 9.1 2023 11.98

Imperial Journal of Interdisciplinary Research (IJIR) Page 1130

Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-11, 2016
ISSN: 2454-1362, http://www.onlinejournal.in

2007 8.1 2024 12.25 small scale investors specially housing loan where
2008 7.2 2025 14.38 interest rate play a vital role in decision making.
2009 10.5 2026 12.95
Demand to sustain 8% growth in medium term driven
2010 9.5 2027 12.18 by :
2028 11.95 - Industry/Others Strong -20% demand
2029 12.05 - Housing- 40 % demand
2030 12.15 – Increasing Government thrust on infrastructure
2031 10.30 – Robust industrial Infrastructure growth 40%
2032 11.97 – Rising Exports, due to high demand from Middle
2033 11.98 East Countries
2034 12.25 Cement Industry Forecast and Demand Forecast,
2035 14.38 there is a huge demand of cement and based on
2036 12.95 forecast till 2050. New player can come in.
2037 12.18
2038 12.95
2039 12.05 7. References
2040 12.95 [1] Press Information Bureau "A" - Wing, Shastri
2041 12.98 Bhawan,Dr. Rajendra Prasad Road, New Delhi
2042 12.97 [2] Capitaline
2043 12.98 [3] PL Research
2044 13.15 [4] www.researchandmarkets.com
2045 13.18 [5] NCB
[6] Government Data
2046 11.95
[7] RBI trends and progress reports
2047 11.18 [8] NHAI, committee on Infrastructure
2048 11.55 [9] ibef.org
2049 11.15 [10] www.cmaindia.org
2050 11.18 wbagrimarketingboard.gov.in/Area/Population.html-
WBSMB
[11]www.mohfw.nic.in/NRHM/State%20Files/wb.ht
6. Conclusion m
[12]www.wburbandev.gov.in/pdf/DECADAL_VARI
In this model all t values are statistically significant ATION_IN_POPULATION_SINCE_1901.pdf
at 95% confidence interval as all values are greater [13] www.wbdma.gov.in/htm/MUNI_urban_wb.htm
than 1.64, except the variable Interest Rate. Since as [14]web.cmc.net.in/wbcensus/TablesSubIndex01.ht
Interest rate is too high and uncertainty. Even m
investment on housing development in Indian not [14]http://planningcommission.nic.in/plans/annualpla
depend on bank loan and large portion of people n/pr/WBAPR0405.pdf
make their investment on their own saving [15]http://www.ibef.org/download/Westbengal_1711
On the basis of ANOVA values we can accept the 09.pdf
model as F values is also significant as it is above 3 http://www.rncos.com/Report/IM129.htm
at 95% level of significant.
Demand driver: This paper has shown that the most
significant factors that drive the cement industry are 8. Annexure
Index Numbers of Industries, Wholesale Price
Index-growth and Growth rate of Net Domestic This work was supported by a various
Saving where as the interest rate is insignificant. A government websites and well as various data
negative relationship between wholesale price index available of past sales figure
and growth of cement industry is also shown to exits
and it has been argued that in reality, inflation create List of Tables
a bad impact on cement demand. The influence of
interest rate is insignificant in Indian cement industry Table 1. Region wise production of Cement
because of the non-existence of local credit and large Table 2. Region wise Consumption of Cement
project of infrastructure are working under the Table 3. Cluster-wise capacity of various regions (7
guideline of foreign institutional investment (FII). major clusters)
However, interest rate has changed the scenario of all Table 4. Weighted Average energy consumption

Imperial Journal of Interdisciplinary Research (IJIR) Page 1131

Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-11, 2016
ISSN: 2454-1362, http://www.onlinejournal.in

Table 5. Particulate Emission standard from Stacks There are seven such clusters in the country in the
Table 6. Permissible Emission country and account for 51% of the cement capacity.
Table 7. Home loan Rates and disbursement of loans
Table 8. Projects under NHDP Cluster Capacity
Table 9. Demand and supply scenario Satna, MP 11.77 mntpa
Table 10. Historical Cement demand supply model Chandrapur, Maharastra/ AP 9.59 mntpa
Gulbarga, Karnataka/AP 6.83 mntpa
Yerranguntla, AP 1.9 mntpa
Table 1. Region wise production of Cement Nalgonda, AP 5.85 mntpa
Bilaspur, MP 9.7 mntpa
Chandoria, Rajasthan/ MP 7.03 mntpa
East accounts for 16.33% of Cement product of the
country. Source: www.researchandmarkets.com
West accounts for 16.85% of Cement product of the
country. Table 4. Weighted Average energy consumption
Thermal Energy Electrical energy
North accounts for 18.02% of Cement product of the consumption ( consumption
country. Kcal/ Kg Clinker) (Kwh/t) Cement
South accounts for 33.03% of Cement product of the Dry Process 763 96.88
country. Plants
Overall ( 769 96.88
Central accounts for 15.77% of Cement product of Combined for all
the country. Processes)
Source : NCB

Graph 1. Region wise production increase for Dec Table 5. Particulate Emission standard from Stacks
2008 The pollution Board has fix Particulate Emission
Region Increase Production in standard from Stacks as under:-
million tones Capacity Protected Area Other area
East 9 2.32 200 tpd & less 250 mg/Nm3 400 mg/Nm3
West 2 2.51 Above 200 tpd 150 mg/Nm 3
250 mg/Nm3
North 22 3.74 Source :- Government Data
South 9 4.94
Central 13 2.31 Table 6. Permissible Emission
Source: Capitaline States Permissible particulate
emission levels for general
area
Table 2. Region wise Consumption of Cement and Madhya Pradesh 150 mg/Nm3
YOY growth% Gujarat 150 mg/Nm3
Region Consumption YOY growth Andhra Pradesh 115 mg/Nm3
% Himachal Pradesh 150 mg/Nm3
Rajasthan 150 mg/Nm3
East 3.02 8.3
West 2.46 14.1 Source :- Government Data
North 3.21 11.7
Table 7. Home loan Rates and disbursement of loans
South 4.58 9.3
Year Interest Rate in Quantum of loan
Central 2.38 25 % lent in Rs Crore
Source: PL Research 2000 13.00 19723.38
2001 12.15 22425.09
2002 11.35 29359.29
Table 3. Cluster-wise capacity of various regions ( 7 2003 9.85 51672.70
major clusters) 2004 7.65 89449.00
2005 7.50 134276.00
Seven Clusters :- Cement and its raw material 2006 8.50 179060.00
namely coal and limestone are all bulky items that 2007 11.00 224481.00
make transportation difficult and uneconomical. 2008 9.00 252932.00
Cement are located close to both source of raw Source: RBI trends and progress reports
material & market , maximum limestone limestone
are located in Madhya Pradesh, Rajasthan, Andhra Table 8: Projects under NHDP
Pradesh, Maharastra and Gujrat leading to the Project Details Date of Cement
Completion consumption
concentration of Cement units in these states . This Mn tones
has resulted in clusters. NHDP GQ & port 90% complete -
Phase I Connectivity

Imperial Journal of Interdisciplinary Research (IJIR) Page 1132

 Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-11, 2016
ISSN: 2454-1362, http://www.onlinejournal.in

NHDP NSEW DEC 2009 8.8 Surplus/ 13 12 5 0 4 18

Phase II Corridor deficit
NHDP Four Laning of Mar 2010 12.8 % surplus( 10% 9% 3% 0% 2% 9%
Phase III 10,000 Km of w.r.t
High density effective
National Capacity)
Highways Actual 86% 88% 95% 99% 97% 91%
NHDP Upgrading of Mar 2012 18.0 utilization
Phase IV existing Average 141 153 163 206 231 239
Highway prices
NHDP Six laning of Mar 2012 3.5 Changes in 3% 8% 6% 27% 12% 4%
Phase V GQ & other average
high density prices
highways Capacity 5% 6% 4% 6% 10% 16%
NHDP 1000 Kms of Mar 2012 4.5 growth
Phase VI Expressways Domestic 5.8 6.40 12.00 9.90 10.10 8%
Total 47.5 growth % % % % %
Source: NHAI , committee on Infrastructure Source:- www.ibef.org

Table 9: Demand and supply scenario

Date Production Consumption Capacity Excess
(% Change) (% Change) Utilization Supply
(%) (%)
Jan - 5.2 10.8 102.4 1.0
08
Feb - (0.9) 5.4 101.2 0.1
08
Mar- 11.2 (0.3) 104.1 1.8
08
Apr- (8.3) 10.7 91.9 (1.1)
08
May- (0.9) (9.8) 89.1 0.4
08
June- (1.5) 2.0 86.5 (0.2)
08
Jul-08 (0.1) (1.3) 86.4 0.0
Aug- (10.2) (2.5) 77.3 (1.1)
08
Sept- 5.6 (9.5) 81.6 1.0
08
Oct- 6.2 4.9 86.3 1.2
08
Nov- 2.9 3.1 83.3 0.4
08
Dec- 10.3 0.9 91.7 1.7
08
Jan- 2.0 11.0 93.4 0.5
09
Source: ibef.org

Table 10: Historical Cement demand supply model

In (m FY0 FY0 FY06 FY0 FY08 FY0
tonnes) 4 5 7 9
Year-end 144 152 158 166 199 222
installed
Capacity
Actuall 144 152 158 166 180 207
effective
capacity
(-) 8.5 8.2 8.5 8.3 5.7 4.9
Mothballed
Capacity
Effective 136 143 150 158 174 202
installed
Capacity
Domestic 114 121 136 149 164 178
Consumpti
on
Export ( 9 10.1 9.2 8.9 6 6.1
Cement +
Clinker)
Domestic 123 131 145 158 170 184
Consumpti
on Report

Imperial Journal of Interdisciplinary Research (IJIR) Page 1133

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