Description
The documentation about on Demand Supply Analysis Of Cement Industry with demand and supply scenarios explained.
DEMAND SUPPLY ANALYSIS OF CEMENT INDUSTRY
1. SUPPLY SCENARIO
? The cement industry is currently producing 250 million tonnes of cement per annum. ? Out of this total production, 93% of total capacity is based on modern and environment friendly dry process technology while Only 7% is based on old wet and semi-dry technology. ? However,Industry’s current capacity utilization rate is only 82%. ? Hence,Over capacity issues are a major concern. REGION WISE SUPPLY
140 120 100 80 60 40 20 0
North East West South
Northern Region(NR) States included in NR: Uttarakhand, Haryana, Punjab, Rajasthan, Himachal Pradesh, Chandigarh, Delhi, Jammu and Kashmir, UP, MP, and Chhattisgarh. NR is the largest cement consuming region in the country and accounted for almost 37% of the all-India consumption and 42% of the available capacity. Within NR, UP, Rajasthan, MP and Haryana are the largest cement consuming States, and accounted for 75% of the regional consumption. The major players in NR include ACC + Ambuja Cement (Part of the Holcim Group), Gasim + Ultratech (part of the A V Birla Group), Jaypee Cement, Shree Cement, the J K Group, Binani Cement, Century Textiles, and Birla Corporation.The region is also a large producer of cement due to high levels of limestone deposits. Eastern Region States included in ER: Assam, Meghalaya, Bihar, Jharkhand, Orissa, West Bengal (WB), Tripura, Manipur, Nagaland, Arunachal Pradesh, and Mizoram. ER is the least cement consuming region in the country and accounted for about 14% of the all-India consumption and only 9% of the available capacity . In the absence of adequate limestone reserves in most eastern States, the region has remained a net importer of cement, relying most on NR, The major players in the region include ACC + Ambuja Cement (Part of Holcim Group), Lafrage, OCL India, Gasim + Ultratech (part of A V Birla Group) and Birla Corporation. in NR. While ER is expected to remain a cement-
deficit region in the long run, the extent of consolidation here is expected to weaken as new players enter the industry. Northern plus Eastern Region With NR historically being a cement-surplus region and ER traditionally a cement-deficit one, the extent of inter-regional cement transfer from NR to ER is considerable. As a result, the overall supply-demand balance of NR + ER as a whole impact prices in these two regions. Any significant surplus in NR would lead to pricing pressures in ER, while any reduction in deficits in ER would create pricing pressures in NR as well as ER. Western Region States included in WR: Gujarat, Maharashtra, and Goa. WR accounted for almost 19% of the total domestic consumption of cement and 15% of the available cement capacity . The largest cement consumer within WR, Maharashtra, is also the largest cement consuming State in the country, and accounted for 12.3% of the total domestic cement. However, Maharashtra lacks significant limestone deposits, and the demand is largely met by the only limestone cluster in the State, that is, the Chandrapur cluster, as well as by imports from States in SR, viz. North AP and North Karnataka. The major players in the region include ACC + Ambuja Cement (Part of Holcim Group) and Gasim + Ultratech (part of A V Birla Group).Going forward,given the significant capacity planned , cement availability is expected to improve within WR,as shown in the graph.
Southern Region States included in SR: Andhra Pradesh (AP), Tamil Nadu (TN), Karnataka, Kerala, Pondicherry, and Andaman & Nicobar. SR accounted for 30% of the total domestic consumption of cement in 2008-09. It is the second largest cement consuming region in the country after by NR. SR is also among the most fragmented regions in terms of capacity concentration in India. The major players in SR include India cements,Grasim, + Ultratech (part of A V Birla Group), Madras Cement, ACC + Ambuja Cement (Part of Holcim Group), and Kesoram Industries. Given the abundant limestone reserves in SR (of the seven major limestone clusters in India, four are in SR), the region has historically been cement-surplus and an exporter to WR. Further, the level of fragmentation in SR is expected to increase further, with the capacity concentration (top five players) likely to decline to around 45% in 2012-13 . Low capacity utilisation along with greater fragmentation may be expected to lead to severe price pressures in SR in the medium term. Southern plus Western Region Given the significant inter-regional transfer of cement from SR (especially North AP and North Karnataka) to the deficit areas in WR (especially Maharashtra), cement prices in these two regions are influenced by the demand-supply balance in SR + WR as a whole. A deficit in WR generally leads to improved prices and capacity utilisation in SR, while a surplus in SR
adversely impacts prices in WR. The level of consolidation is a likely to weaken in both SR and WR, which along with the expected decline in capacity utilisation could increase the intensity of competition and pricing pressures further.
2. DEMAND SCENARIO ? Cement is a cyclic commodity industry with profit and return dependent on the demand cycle picture.There has been a rapid increase in demand since 2001 leading to constant increase in prices. ? Government projects such as, Golden Quadrilateral, Commonwealth games, NREGA, and Indira Awas Yojana have also provided a boost to the demand. ? Demand for housing has increased which has motivated the private players to construct houses. ? Infrastuctural development taking place in the cities with the increase in construction of flyovers,roads etc.
CONSUMPTION TREND
Domestic Consumption
250 200 150 100 50 0
Domestic Consumption
2003-04
2001-02
2002-03
2004-05
2005-06
2006-07
2007-08
2008-09
Demand for cement has increased steadily since 2001,but only marginally as compared to supply,which has led to an excess in the supply of cement.
2009-10
DEMAND SUPPLY TRENDS
400 350 300 250 200 150 100 50 0
SUPPLY DEMAND
As shown in the graph, there has always been a gap in the demand and supply of cement, with the supply exceeding the demand. But this gap, according to the industry reports will increase even further by 2012-2013 with the construction of new production plants and government backing with deregulation of cement.
Factors which can possibly reduce this demand supply gap area) Formation of manufacturers’ cartel, who can collectively decide on the optimum price and production of cement. b) Delay in implementation of planned additions and expansions of production plants. c) Efforts to export cement. d) Increasing the demand by incorporating more infrastructural projects.
3. PRICING-COST COMPONENTS
The major cost components in cement industry are: • The major cost components in cement industry are: ? Energy costs ? Freight costs ? Capital ? Labour ? Raw material • Over the years share of energy costs have gone up marginally while freights costs have declined. • Other costs more or less stable.
• This has resulted in only a marginally increase in the price of cement.
4. ECONOMIES OF SCALE
? Industry is dominated by the L-shaped average cost curve. ? This includes a High Fixed cost and constant marginal cost.Average variable cost has risen but not that much.
? Average Fixed cost curve is a downward parabola,such that as more and more units of cement are produced,the fixed price falls. ? However,the industry is found to be still operating in the first half of the L-shaped average cost curve and thus cement firms have not yet reached their optimum size. ? Significant economies of scale exist only with respect to labour costs.
doc_350113789.docx
The documentation about on Demand Supply Analysis Of Cement Industry with demand and supply scenarios explained.
DEMAND SUPPLY ANALYSIS OF CEMENT INDUSTRY
1. SUPPLY SCENARIO
? The cement industry is currently producing 250 million tonnes of cement per annum. ? Out of this total production, 93% of total capacity is based on modern and environment friendly dry process technology while Only 7% is based on old wet and semi-dry technology. ? However,Industry’s current capacity utilization rate is only 82%. ? Hence,Over capacity issues are a major concern. REGION WISE SUPPLY
140 120 100 80 60 40 20 0
North East West South
Northern Region(NR) States included in NR: Uttarakhand, Haryana, Punjab, Rajasthan, Himachal Pradesh, Chandigarh, Delhi, Jammu and Kashmir, UP, MP, and Chhattisgarh. NR is the largest cement consuming region in the country and accounted for almost 37% of the all-India consumption and 42% of the available capacity. Within NR, UP, Rajasthan, MP and Haryana are the largest cement consuming States, and accounted for 75% of the regional consumption. The major players in NR include ACC + Ambuja Cement (Part of the Holcim Group), Gasim + Ultratech (part of the A V Birla Group), Jaypee Cement, Shree Cement, the J K Group, Binani Cement, Century Textiles, and Birla Corporation.The region is also a large producer of cement due to high levels of limestone deposits. Eastern Region States included in ER: Assam, Meghalaya, Bihar, Jharkhand, Orissa, West Bengal (WB), Tripura, Manipur, Nagaland, Arunachal Pradesh, and Mizoram. ER is the least cement consuming region in the country and accounted for about 14% of the all-India consumption and only 9% of the available capacity . In the absence of adequate limestone reserves in most eastern States, the region has remained a net importer of cement, relying most on NR, The major players in the region include ACC + Ambuja Cement (Part of Holcim Group), Lafrage, OCL India, Gasim + Ultratech (part of A V Birla Group) and Birla Corporation. in NR. While ER is expected to remain a cement-
deficit region in the long run, the extent of consolidation here is expected to weaken as new players enter the industry. Northern plus Eastern Region With NR historically being a cement-surplus region and ER traditionally a cement-deficit one, the extent of inter-regional cement transfer from NR to ER is considerable. As a result, the overall supply-demand balance of NR + ER as a whole impact prices in these two regions. Any significant surplus in NR would lead to pricing pressures in ER, while any reduction in deficits in ER would create pricing pressures in NR as well as ER. Western Region States included in WR: Gujarat, Maharashtra, and Goa. WR accounted for almost 19% of the total domestic consumption of cement and 15% of the available cement capacity . The largest cement consumer within WR, Maharashtra, is also the largest cement consuming State in the country, and accounted for 12.3% of the total domestic cement. However, Maharashtra lacks significant limestone deposits, and the demand is largely met by the only limestone cluster in the State, that is, the Chandrapur cluster, as well as by imports from States in SR, viz. North AP and North Karnataka. The major players in the region include ACC + Ambuja Cement (Part of Holcim Group) and Gasim + Ultratech (part of A V Birla Group).Going forward,given the significant capacity planned , cement availability is expected to improve within WR,as shown in the graph.
Southern Region States included in SR: Andhra Pradesh (AP), Tamil Nadu (TN), Karnataka, Kerala, Pondicherry, and Andaman & Nicobar. SR accounted for 30% of the total domestic consumption of cement in 2008-09. It is the second largest cement consuming region in the country after by NR. SR is also among the most fragmented regions in terms of capacity concentration in India. The major players in SR include India cements,Grasim, + Ultratech (part of A V Birla Group), Madras Cement, ACC + Ambuja Cement (Part of Holcim Group), and Kesoram Industries. Given the abundant limestone reserves in SR (of the seven major limestone clusters in India, four are in SR), the region has historically been cement-surplus and an exporter to WR. Further, the level of fragmentation in SR is expected to increase further, with the capacity concentration (top five players) likely to decline to around 45% in 2012-13 . Low capacity utilisation along with greater fragmentation may be expected to lead to severe price pressures in SR in the medium term. Southern plus Western Region Given the significant inter-regional transfer of cement from SR (especially North AP and North Karnataka) to the deficit areas in WR (especially Maharashtra), cement prices in these two regions are influenced by the demand-supply balance in SR + WR as a whole. A deficit in WR generally leads to improved prices and capacity utilisation in SR, while a surplus in SR
adversely impacts prices in WR. The level of consolidation is a likely to weaken in both SR and WR, which along with the expected decline in capacity utilisation could increase the intensity of competition and pricing pressures further.
2. DEMAND SCENARIO ? Cement is a cyclic commodity industry with profit and return dependent on the demand cycle picture.There has been a rapid increase in demand since 2001 leading to constant increase in prices. ? Government projects such as, Golden Quadrilateral, Commonwealth games, NREGA, and Indira Awas Yojana have also provided a boost to the demand. ? Demand for housing has increased which has motivated the private players to construct houses. ? Infrastuctural development taking place in the cities with the increase in construction of flyovers,roads etc.
CONSUMPTION TREND
Domestic Consumption
250 200 150 100 50 0
Domestic Consumption
2003-04
2001-02
2002-03
2004-05
2005-06
2006-07
2007-08
2008-09
Demand for cement has increased steadily since 2001,but only marginally as compared to supply,which has led to an excess in the supply of cement.
2009-10
DEMAND SUPPLY TRENDS
400 350 300 250 200 150 100 50 0
SUPPLY DEMAND
As shown in the graph, there has always been a gap in the demand and supply of cement, with the supply exceeding the demand. But this gap, according to the industry reports will increase even further by 2012-2013 with the construction of new production plants and government backing with deregulation of cement.
Factors which can possibly reduce this demand supply gap area) Formation of manufacturers’ cartel, who can collectively decide on the optimum price and production of cement. b) Delay in implementation of planned additions and expansions of production plants. c) Efforts to export cement. d) Increasing the demand by incorporating more infrastructural projects.
3. PRICING-COST COMPONENTS
The major cost components in cement industry are: • The major cost components in cement industry are: ? Energy costs ? Freight costs ? Capital ? Labour ? Raw material • Over the years share of energy costs have gone up marginally while freights costs have declined. • Other costs more or less stable.
• This has resulted in only a marginally increase in the price of cement.
4. ECONOMIES OF SCALE
? Industry is dominated by the L-shaped average cost curve. ? This includes a High Fixed cost and constant marginal cost.Average variable cost has risen but not that much.
? Average Fixed cost curve is a downward parabola,such that as more and more units of cement are produced,the fixed price falls. ? However,the industry is found to be still operating in the first half of the L-shaped average cost curve and thus cement firms have not yet reached their optimum size. ? Significant economies of scale exist only with respect to labour costs.
doc_350113789.docx