Pest anaylsis of cement industry

INTRODUCTION OF CEMENT INDUSTERY

Cement Industry originated in India when the first plant commenced production in 1914 in Probandar, Gujarat. The industry has since been growing at a steady pace, but in the initial stage, particularly during the period before Independence, the growth had been very slow. Since indigenous production was not sufficient to meet the entire domestic demand, the Government had to control its price and distribution statutorily. Large quantities of cement had to be imported for meeting the deficit. The industry was partially decontrolled in 1982 and this gave impetus to its pace of growth. Installed capacity more than doubled during the period 1980-90. It increased from 27 million tonnes in 1980-81 to 62 million tonnes in 1989-90.

Encouraged by the positive response of the industry to the policy liberalisation in the cement industry, Government decontrolled the industry fully on 1st March 1989. With the Industrial Policy Statement made by the Government on 24th July 1991, the cement industry stands delicensed. It has also been listed as a priority industry in Schedule III of the Industry Policy Statement making it eligible for automatic approval for foreign investment upto 51 per cent and also for technical collaboration on normal terms of payment of royalty and lumpsum know-how fee.

Indian cement industry has thus been one of the pioneering industries in introducing policy reforms. After the liberalisation measures and globalisation of Indian economy, the cement industry has been growing rapidly at an average rate of 8 per cent except for a short period in 1991-92 when the industry faced demand recession. The country is now the second largest producer of cement in the world. India has also started exporting large quantities of cement and clinker.

HISTORY OF CEMENT INDUSTRY

In the 18th century a big effort started in Europe to understand why some limes possess hydraulic properties. John Smeaton often referred to as "father of civil engineering in England" concentrated his work in this field. The French Engineer Louis Vicat, inspired by the work of Smeaton and Parker, began a study of hydraulic limes in 1812 (published in 1818 as "Recherches experimentales sur les chaux de construction". He reported that in the absence of naturally occurring argillaceous components in limestone, quality hydraulic limes could be prepared by the calcination of fixed ratios of clay proportioned with quicklime.

In 1818 an English patent was granted to Maurice Leger for "Improvement method of making lime" (Leger used Vicat's method). In 1822, the production of "British Cement" had been started by James Frost at Swanscombe based on a patent for "a new cement or artificial stone". The invention of Portland Cement is generally credited to Joseph Aspedin, an English Bricklayer in 1824. It involves a double kilning such as was described by Vicat. In 1838 a young chemical engineer, Isaac Johnson, burned the cement raw material at high temperature until the mass was nearly vitrified producing the modern Portland Cement. The German Chemist Wilhelm Michaelis proposed the establishment of cement standards in 1875.

The earliest kiln is one of William Aspedin's bottle kilns from Robins & Aspedin factory at Northfleet. The earliest bottle or dome kilns were open kilns with tapered chimneyto increase the draft. They were burned in a batch rather than in a continuous fashion and were charged with alternating layers of raw feed and solid fuel.

The chamber kiln was an improved design developed and patented by Mr. Johnson. The combustion gases from the kiln dried the raw material so that when the kiln was burned out a new charge of dried material is immediately ready for use. The time and heat losses resulting from drawing the clinker, recharging the kiln, and then heating it again led to the design of shaft kiln with continuous burning of the materials, one of the main problem of the new kiln operation was the difficulty of obtaining an even clinker burning, as some of the product would be greatly under-burnt and others be much more heavily clinkered.

In 1898 Atlas Portland cement company according to Lewis improved the design by using what is called a rotary kiln, this improvement was a big revolution in the cement industry because the new kiln could produce 200 cement barrels per day compared to a shaft kiln which produced only 40 to max 80 barrels per day; in addition to quick improvement in this new design regarding the mixing, grinding equipments for raw material, grinding equipments for coal, belt conveyor using mix kind of fuel such as natural gas(1904, Iola Portland cement, Iola Kansas). In practice, the operation with the first generation of rotary kiln (Ransone kiln) was very difficult due to problem of maintaining a sufficient and uniform kiln temperature with excessive balling of raw feed and sticking on the Frederick lining.

In 1899 Atlas Cement Company improved the technology of the rotary kiln and fuel economy by replacing fuel oil with powdered coal dust. Furthermore, modifications to the kiln were made by addition of two auxiliary clinker coolers, in which the first hot discharged clinker was received as it fell from the kiln and air flowing over it was heated and helped to ignite the coal dust in the rotary kiln. The new clinker produced from the new kiln technology was different than the old clinker especially from the setting time (much faster setting time). The French chemist Pierre Giron solved this problem by adding gypsum to the cement in order to control the setting time.

After 1900 there was rapid growth in both rotary kiln and auxiliary equipment technology in the United States. Coal grinding mills were developed and coal burning in cement kilns became the predominant combustion process in the industry. All the equipments related to cement production crusher, raw mill, belt conveyors, bucked elevators were improved. Improvement in the following fields pertaining to cement manufacturing from material science technology has been an ongoing process for 200 years.

PRESENT STATUS

INSTALLED CAPACITY: In the cement industry there are two sectors one consisting of large plants and the other consisting of mini cement plants. A factory with an installed capacity exceeding 2,97,000 tonnes per annum (900 tonnes per day) is a large plant and with capacity upto and including 2,97,000 tonnes is a mini cement plant. At present, there are 120 large plants and about 300 mini cement plants. Since mini cement plants are scattered all over the country with a number of associations representing different types of processes, sizes etc. and some of them are even tiny units, it has not been possible to obtain correct data of this sector. The present installed capacity of large plants is 112.01 million tonnes and the estimated capacity of mini cement plants is 9 million tonnes. There is only one Central Public Sector Undertaking in the cement sector, i.e. Cement Corporation of India, which has 10 units. There are 10 large cement plants owned by various State Governments. The break-up of installed capacity of large and mini cement plants is given below:

Political impact

Firsly,we will discuss the political impact of cement industry. The 212-million tonne cement industry's demands seem to have no end. After a healthy quarter (January-March 2009)due to robust demand from the infrastructure segment, good dispatches and growth in profitthe industry seems to be wanting for more. With election results being declared in favour of the UPA and the country moving on its way to form the new government, the cement industry is expecting excise benefits and ban on imports to boost the cement demand which has taken a hit due to slowdown in the real estate sector.

Says Sumit Banerjee, MD of ACC Ltd, "We need directional steps to correct anomalies in excise taxes, the manner in which these are levied on our industry. We would also want a customs duty rationalisation that would rectify the current imperfection, whereby the inputs are taxed but not the direct import of cement.

According to Vinod Juneja, MD of Binani Cement, "We are looking at reduction in excise duty to 4% and a complete ban on import of cement, from the new government. Meanwhile, taking into consideration the crisis the cement industry is going through, the government had, in its stimulus package, imposed a 4% cut in excise duty to 8% along with cut in excise duty on bulk cement from 14% to 8%. HM Bangur, president of Cement Manufacturers Association (CMA) and CMD of Shree Cement however, declined to comment on the industry expectations from the new government.

"The election results are positive but it is too early for me to comment on the industry's expectations before the new government is formed, he said. Meanwhile, Vinita Singhania, MD of JK Lakshmi Cement Ltd and vice president of CMA, expects that the infrastructure development would have to be pursued with much more vigour to take India closer to its aim of being a super economic power. This would entail building of modern ports, new super express highways, concretisation of roads, emphasis on canal lining etc.

"We would also expect the new government to have a re-look at the high incidence of taxation on the cement industry so that cement becomes more affordable to all sections of the society and fulfill the dream of common people to have a home of their own, Singhania adds.

ROLE OF CEMENT INDUSTRY IN INDIA GDP

The Role of Cement Industry in India GDP is significant in the economic development of the country. The cement industry in India is one of the oldest sectors in India.

The industry is driven by the immense growth in the housing sector, the infrastructure development, and construction of transportation systems.

Role of Cement Industry in India GDP-Facts

  • The Indian cement industry is one of the booming sectors of the Indian economy
  • The infrastructure development of the country in the recent years is the demand driver for the cement industry
  • The Indian Cement Industry is experiencing the entry of many foreign players in the Indian market
  • The average monthly capacity utilization during the year 2006-07 was 94%
  • The cement dispatches in the year 2006-07 was 155 million tonnes
  • The growth of the cement sector pertaining to the total output was 10% in 2006-07

Role of Cement Industry in India GDP-Production

  • India ranks second in the production of cement in the world
  • The growth rate of the production of cement during the year 2006-07 was 9.1%
  • The export of the cement in the year 2006-07 was 9.3 million tonnes
  • The cement industry in India constitutes of 365 small cement manufacturing units and 130 large cement manufacturing units
  • The total installed capability of the cement manufacturing is 165 million tonnes per year
  • The large manufacturing units accounts for 94% of the total output of cement

Role of Cement Industry in India GDP-Mergers and Acquisitions

  • Heidelberg Cement-Indorama Cement Ltd
  • Heidelberg Cement Company entered into an agreement for a 50% joint venture with the Indorama Cement Ltd, situated in Mumbai, originally possessed by the Indorama S P Lohia Group.
  • Heidelberg Cement Company has two manufacturing units in India
  • Italcementi cement-Zuari Cement Limited
  • Italcementi cement company has acquired share of the famous Indian cement manufacturer, the Zuari Cement Limited
  • The acquisition was of 50% shareholding and the deal was of about 100 million
  • It took over the plant of the Zuari Cement Limited in Andhra Pradesh
  • Holcim Cement-Gujarat Ambuja Cements (GACL)
  • Holcim Cement signed an agreement of 14.8% take over with the Gujarat Ambuja Cements (GACL).
  • Holcim Cement Company is among the leading cement manufacturing and supplying companies in the world.
  • Lafarge India
  • Lafarge India is the subsidiary of the Lafarge Cement Company of France.
  • It was established in 1999 with the acquisition of the Tisco and the Raymond cement plants
  • Lafarge Cement presently has three cement manufacturing units in India one of them is in Jharkhand and two other in Chhattisgarh

Government Initiatives

Government initiatives in the infrastructure sector, coupled with the housing sector boom and urban development, continue being the main drivers of growth for the Indian cement industry.

  • Increased infrastructure spending has been a key focus area over the last five years indicating good times ahead for cement manufacturers.
  • The government has increased budgetary allocation for roads under National Highways Development Project (NHDP).
  • Appointing a coal regulator is looked upon as a positive move as it will facilitate timely and proper allocation of coal (a key raw material) blocks to the core sectors, cement being one of them.

Keeping in mind the global meltdown which is impacting the cement companies in India, the government re-imposed the counter-veiling duty (CVD) and special CVD on imported cement in January. This is likely to provide a level playing field to domestic companies

Economic impact:

Now we will discuss the economic impact of cement industry.India is the second largest industry after china.A variety of studies on productivity growth and technological change in Indian industries has been carried out so far. Originally these studies were driven by an interest in understanding the capital vanishing phenomena in the Indian industry between 1950 and 1980. During that time, labor productivity as well as capital availability and use increased considerably, while the overall growth rate of the economy stagnated at low levels (see Ahluwalia, 1991). Concerned about the efficiency of resource use researchers started investigating productivity growth and input factor substitutions for aggregate manufacturing as well as various industries. The results of these analyses differed substantially depending on the methodology, statistical specification employed as well as on the underlying sources of data, levels of aggregation and time periods considered.Over time more sophisticated and refined methodologies in connection with longer time series were employed to study productivity change. The contribution of total factor productivity to output growth was of primary interest to explain the continously low economic development.

Partial factor productivity was investigated to better understand the importance of each factor of production and to evaluate substitution possibilities. In this context, the role of energy within the production process received increasing attention and consequently, besides the primary factors of production (capital and labor), energy and materials were added as secondary input factors into the analyses.Total factor productivity growth (TFPG) measures the growth in gross value added(GVA) in excess of the growth of a weighted combination of the two inputs capital and labor. For measuring output in form of gross value added all intermediate inputs are deducted. Thus, gross value added only provides the value that is actually added in the production process by using the two primary inputs of production: capital and labor. Total Productivity Growth, in contrast, relates gross value of output (VO) to the four input factors capital, labor, energy and materials. Since it accounts for intermediate inputs as well as primary inputs, value of output provides the more appropriate output measure if interested in analyzing energy and material as well as capital and labor.Commonly, three major growth accounting approaches are considered for estimating total factor productivity as well as total productivity growth: the Translog Index, the Solow Index and the Kendrick Index. The three indices differ in their complexity and the 13 underlying economic assumptions. A detailed derivation of the three indices is provided in a survey report by Mongia and Sathaye (1998a).

The Kendrick index is easy to understanding using an arithmetic aggregation scheme for the inputs. It is restrictive in that it is based on the assumption of a linear production function and in assigning constant (base year) shares in GVA (VO respectively) to the inputs. The Solow index is slightly more general in assuming a neo-classical, Cobb-Douglas, specification of the production function with constant returns to scale, perfect competition in the market and factors being rewarded their marginal products. The translog measure is based on a more complex production function associated with only a minimum numbers of assumptions. It is therefore of more general nature and provides the preferably used measure for productivity growth.Partial factor productivity (PP) indices are reported for all input factors. They are obtained by simply dividing the value figure for each factor by the gross value of output or by the gross value added respectively. Partial factor productivity growth indicates how much output changes in relation to a fixed amount of each single input. It measures how"productive a factor is. The inverse means how much of a factor has to be used to produce a specific amount of output - it measures the factor intensity of production.

Technological change

Continuous technological upgrading and assimilation of latest technology has been going on in the cement industry. Presently 93 per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology and only 7 per cent of the capacity is based on old wet and semi-dry process technology. There is tremendous scope for waste heat recovery in cement plants and thereby reduction in emission level. One project for co-generation of power utilizing waste heat in an Indian cement plant is being implemented with Japanese assistance under Green Aid Plan. The induction of advanced technology has helped the industry immensely to conserve energy and fuel and to save materials substantially.

India is also producing different varieties of cement like Ordinary Portland cement(OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White Cement etc. Production of these varieties of cement conform to the BIS Specifications. Also, some cement plants have set up dedicated jetties for promoting bulk transportation and export.

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