So comes the landmark verdict the cement industry has been waiting for. The Competition Commission of India (CCI) has cleared the proposed merger of French cement maker Lafarge and Holcim. The merger which will create the world´s largest cement company by manufacturing capacity and sales was expected to tilt the balance. As expected, to address the monopoly concerns, the CCI has decided that a divesture of Lafarge´s Jojobera plant in Jharkhand and the company´s integrated unit at Sonadih in Chhattisgarh will be most effective in eliminating the concerns. This will cut down around 5 mtpa from the combined capacity of both Holcim and Lafarge. It is learnt that CCI will also appoint a monitoring agency to oversee compliance to the conditions put forth by it to ensure that the merger does not negatively impact the competitive scenario.
The cement industry has been witnessing several acquisitions and capacity additions. Analysts feel that there would be more capacity addition in the coming years despite the fact that current capacity utilization is below 75 mtpa. After a strong start to FY15, cement demand dipped in the second half and for the fifth year in a row, the growth remained below the long-term average of over 8 per cent. As of today, capacity continues to be way ahead of actual demand; however, major players are keen to maintain and grow their market share and therefore, expand to secure future demand. The push for dominance in new markets and sustaining the existing ones seems to be the logic behind continued push for capacity additions. According to ICRA report on the sector, the industry is likely to add 25 mtpa capacities in FY15, 23 mtpa in FY16 and 8 mtpa in FY17 as against the historical peak addition of 50 mtpa in FY10.
UltraTech´s capacity had risen to 59 mtpa after the Jaypee deal, and as per reports, the cement giant plans to increase its capacity to 70 mtpa by 2016.
Reliance Cement is reportedly in talks with some multinational players and has offered a strategic stake to them. The prospective joint venture partner may fund the company´s cement capacity expansion - estimated to rise from 5 mtpa to 15 mtpa by 2018. Orient Cement has set ambitious plans to increase capacity from its current 5 mtpa to 15 mtpa by 2020. Its new Greenfield plant with a capacity of 3 mtpa at Gulbarga will be operational this fiscal. The remaining capacity of 7 mtpa is expected through either brownfield plants or acquisitions. Jaypee Group is reportedly in talks with some large players to form a joint venture which will control the majority of its cement plants. The plan envisages a separate joint venture entity which will house around 20-22 mtpa of Jaypee´s operational units spread across the country and a new greenfield unit in Karnataka, which is expected to come on stream this year.
In such a scenario of over capacity, it is rather ironical that the Confederation of Real Estate Developers´ Associations of India (CREDAI) is thinking of importing cement from abroad, China in particular. The move is to counter the problems of increasing prices of cement on one hand, and the truck movement restriction imposed by the Telangana government on the other. This possibility of import of cement brings us to our interesting cover story of the current edition on ´Optimising Logistics.´ In fact, import of bulk cement into our country in the past has not succeeded mainly because of logistics bottlenecks in our ports and in the hinterland. We have a long way to go in setting up state-of-the-art facilities of bulk handling, storage and transportation of commodities like cement, in our port infrastructure.
In the last few years, logistics has emerged as a function of critical importance in cement business possibly on par with manufacturing and sales. Our cover story on this topic informs the readers on the logistics trends, and ways and means to improve efficiency and have a significant impact on the bottomlines of our cement players.
Sumit Banerjee Chairman, Editorial Advisory Board