India: CII report predicts 550 – 600 million tpa cement demand by 2025

A new report from the Confederation of Indian Industry (CII) forecasts cement demand of 550 – 600 million tpa by 2025 as India continues to urbanise, driving infrastructure development and housing demand. The CII report states that considerable capacity addition will be required to meet this demand and government support will be crucial.

‘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,’ the report says, adding that the industry contributes more than 5% of India’s fiscal revenue and employs more than 1 million people directly and indirectly.

Scope for growth

Per capita cement consumption remains low in India compared with the rest of the world, which is where the scope for growth lies. Ready-mix cement accounts for less than 10% of total cement demand; the majority of cement sales are by bag, with retail sales of cement accounting for 60 – 65% of cement demand.

India’s move from OPC to blended cement over the last 15 years has increased the consumption of large amounts of industrial waste, such as flyash and slag, and decreased carbon dioxide emissions. Growing scale and improved technology has led to cost-efficiencies as well as greater thermal and energy efficiency. Labour productivity has also improved, with turnover per employee up more than 90% between 2006 and 2012.

Industry challenges

However, high production costs, taxes and sluggish demand, as well as other challenges such as a lack of quality logistics infrastructure (especially railways), have proved difficult for the cement industry. The report states that, at the current pricing and cost structure, the implied internal rate of return (IRR) for a greenfield plant commissioned in 2012 is just 9 – 10%.

Per capita cement demand is forecast to increase from the current 185 kg to 385 – 415 kg by 2025, led by investments in the infrastructure sector. ‘By driving increased cement usage in these infrastructure projects (roads, power and irrigation), the industry can achieve the full potential of cement demand growth’, the report states. The residential sector will also remain a big consumer, at 42 – 45% of total demand in 2025, however a shift in customer base is likely to take place as the share of large and direct buyers (contractors and developers) is expected to increase from 30% to 70% by 2025. According to the report, this will have three key impacts on the cement sector, namely: change in product preference, a shift in the mode of delivery and higher sophistication in selling and delivering.

Change in product preference

Large institutional buyers and RMC buyers are likely to prefer OPC. In-house blending can be a favourable cost option.

Shift in mode of delivery, higher demand for RMC and bulk

Demand for RMC could reach 25% by 2025. This would also affect demand for bulk cement, which could reach 20% of total demand.

Higher sophistication in selling and delivering

With big customers to please, timely delivery, technical competence, relationship management and transparency in credit and commercial terms become more important.

With the forecast rise in demand, additional capacity of 330 – 380 million tpa of cement (240 – 270 million tpa of clinker) could be required by 2025. That’s equivalent to an investment of Rs.300 000 crore. The government would need to support such investment with favourable terms.

Energy security

Energy resources could also prove challenging. Increased use of waste heat recovery (WHR), alternative fuels and raw materials (AFR) and renewables will be needed to offer alternative solutions to coal, while increased energy efficiency and a reduced clinker factor will also be a key focus. Government support would also be needed to help fair and transparent pricing of flyash, to ease constraints on imports of raw materials and to streamline the process for acquiring new land.

Logistics are already an issue and will become more so as cement demand increases. The report states: ‘Active government measures will be required to increase rake capacity and improve road and rail infrastructure in particular’.

Vision 2025

The CII states that the industry’s long-term vision will be built on three pillars: its role in supporting the building of modern India, both as a supplier of the key materials and as a role model of manufacturing best practice and state-of-the-art technology; its innovative approach to alternative energy sources and efficiency measures; its position as one of the most admired industries among core sectors, in terms of its contribution to the country’s growth and sustainable development.

The full report can be downloaded at www.cii.in.

Adapted from report by Katherine Guenioui

Read the article online at: https://www.worldcement.com/asia-pacific-rim/01052014/india_cii_report_predicts_550%E2%80%93600_million_tpa_cement_demand_by_2025_126/