Taking this backdrop CII has initiated a study on Indian cement industry and has formulated a Cement Vision 2025: Scaling New Heights. The study covers the historical evolution of the cement industry, the current status of the industry, It’s growth potential and detailed recommendations for the government.
The industry has consistently contributed more than 5 percent of India’s fiscal revenue and is the leading environmentally sound sink for industrial wastes. The sector also employs more than one million people directly and indirectly. Adding to this rapid acceleration in capacity and production, while meeting global standards for manufacturing technology, energy efficiency, and safety, has made the cement industry integral to India’s growth in the past decade.
As a country, however, India has one of the lowest per capita consumptions in the world, even when compared to other economies at similar prosperity levels (GDP per capita). Unlike developed markets and large developing markets such as China, India has some distance to go to create sufficient infrastructure, overcome a large housing deficit, and jump-start its slow pace of urbanization.
During the past 15 years, global efforts to improve the quality and consistency of blended cements have contributed to a remarkable shift in demand in the Indian cement industry from ordinary portland cement (OPC) toward blended cement. The use of blended cement has not only increased the consumption of large amounts of industrial waste, such as fly ash and slag, but also reduced carbon dioxide emissions.
Over the years, India’s cement business has become more organized and structured, with consolidation and the average size of players increasing steadily. Growing scale, coupled with improved manufacturing technology, has led to significant cost efficiencies as well. In addition to this improved power and thermal energy efficiencies, labor productivity has improved the turnover per employee has also increased by more than 90 percent between 2006 and 2012.
However, in the past five to six years, supply-side bottlenecks have intensified. The share of linkage coal in the overall energy mix declined from 65 percent in FY06 to 35 percent in FY12, leading to increased dependence on alternative sources. The need for quality logistics infrastructure (especially railways), a shortage of skilled construction labor, and delays in getting land and environmental clearances make setting up much-needed additional capacity difficult These factors, combined with the higher costs of fuel and financing, have put enormous pressure on the cost of cement manufacturing, which has risen 8 percent annually during the past four years, despite the achieved efficiencies.
Cement industry growth during the next decade looks very promising. Cement demand is projected to grow to 2.5 to 2.7 times the current volumes and reach 550 to 600 MTPA by 2025. Per capita cement consumption is likely to increase from 185 kg currently to 385 to 415 kg in 2025. This growth will likely be led by investments in the infrastructure sector, with sub-sectors such as roads, power, and irrigation leading the charge.
These changes will lead to a significant shift in the overall cement customer mix. The share of large and direct buyers (contractors and developers) is expected to increase from 30 percent currently to 70 percent by 2025.
An additional capacity of 330 to 380 MTPA for cement and 240 to 270 MTPA for clinker could be required by 2025, translating to an investment of close to Rs 300,000 crore.
Energy security will become a key concern for the industry. Proactive use of waste heat recovery (WHR), alternative fuels and raw materials (AFRs), and renewables will become important alternatives to domestic coal. The split between imported coal and petcoke (both domestic and imported) will be governed by prevailing market prices and availability.
Improving energy efficiency of clinker and cement manufacturing will be important. So will improvement of the clinker factor by increasing blending levels and promoting the use of alternative materials for blending. Government support through mechanisms for fair and transparent pricing of fly ash would help as well.
The transportation of raw material and cement will severely constrain India’s cement business. Active government measures will be required to increase rake capacity and improve road and rail infrastructure in particular. Finally, the industry can avoid a skill gap by pro-actively addressing the growing need for skilled manpower (both blue and white collar).
With proactive measures and government support in place, the industry’s long-term vision will be built on three pillars:
Support the building of modern India. Infrastructure and housing will be essential building blocks for modern India, and high-quality cement and concrete at cost-effective prices will be prerequisites for both sectors, requiring the industry to build adequate supply capacity to meet the demand. To ensure viable added capacity, continuous efforts to improve cost efficiencies will be crucial.
In addition, advancements in product offerings (value-added products), the distribution model (bulk delivery), and structural design and specifications can help promote best-in-class construction practices. The industry can be a role model for other processes and manufacturing industries by developing best practices while using state-of-the-art technology for cement production and application.
Secure long-term energy requirements in a cost-effective, sustainable manner, and emerge as a world leader in sustainability. Long-term growth in cement production will result in a corresponding increase in thermal and electrical energy requirements for the sector. The supply of coal, the preferred source for thermal and electrical energy, is already bottlenecked. In addition, the impact of efficiency improvements is slowly plateauing.
The industry can overcome these factors by working creatively to further improve energy efficiency while increasing adoption of alternative energy sources. Investments in strong local R&D capabilities can help keep up with - if not remain ahead of - global advancements in technology while using the industry’s increasing scale to push efficiency to the next level.
Become one of the most admired industries among core sectors. The cement industry has directly contributed to the nation with taxes and jobs. Indirectly, it has contributed by developing communities in several remote areas, acting as a sustainable outlet for hazardous waste material, and taking big strides to improve safety standards for its workers. The industry has the potential to become even more appealing to employees, communities, and other stakeholders by becoming an end-to-end solution provider for customers and offering good long-term returns for shareholders.
Key Government Imperatives
Active government support will be critical in achieving the proposed vision 2025. Some key action items for the government will include:
1. Ensure viability of new capacity addition in the industry through following measures-
a. Help the industry gain cost competitiveness through adequate incentives
i. Optimize the tax structure for cement and other key input materials
ii. Fast-track implementation of GST
b. Debottleneck input resources
i. Streamlining land acquisition process for greenfield expansion
ii. Improve quality and availability of logistics infrastructure
iii. Ease the supply of limestone & gypsum
iv. Improve quality and no. of ITIs: Increase the pace on setting up of industrial training institutes and strengthen the PPP model for ITI’s by giving more autonomy to the industry in running the operations of the ITI.
2. Promote global best practices in use and delivery of cement
a. Revisit specifications of infrastructure projects by evaluating the use of cement or concrete in roads and canals from a life-cycle cost perspective and drive adoption:
b. Revisit BIS cement standards - consider migrating to standards that are based on product performance rather than product composition for encouraging product innovation
3. Enhance energy security for the industry
a. Support fair pricing of fly ash
b. Facilitate adoption for cleaner energy sources
i. Restrict land-filling or dedicated incineration of waste and help develop adequate local waste collection networks
ii. Uniformly implement the “polluter pays” principle and ensure that wastes are made available at near-zero costs
iii. Incentivize adoption of WHR systems till financial viability is established
iv. Provide adequate support for development of alternate technologies like nanotech and geo-polymer cement
4. Debottleneckcoal supply
a. Ensure a level playing field for cement companies to participate in auction of coal blocks
i. Build adequate infrastructure to facilitate better handling of coal in the future, especially at importing port
These measures will provide the Indian cement industry the much required support from the government and support the industry in its aspiration to being the most admired industries & consumption, reduce costs and being more energy efficient.