Cement Industry –An Introduction About Cement & Cement Industry(S No. 4,5,6,7) Process of Cement Manufacturing(S No.8,9,10,11,12) Overall Industry (S No.13,14,15) Cost And Price ( S No. 16,17,18) Audit Overview (S No.19,20) Recent Development in Industry (S No.21,22) Cartelization in Cement Industry- A Case Study( S No. 23) 2
IntroductionGiven the vast geographical size and massive population of the country, various construction activitiesundertaken by the Central Government, State Governments ,Public sector undertakings and otherorganizations including private sectors generate huge demand for cement.Being the most essential raw material in any kind of construction activity with no close substitute, CementIndustry plays crucial role in the infrastructural development of the country.Reiterating its focus on infrastructure development in the Twelfth Plan(F.Y. 13-17),Planning Commission hasprojected an investment of US $1 Trillion during the plan period of which private sector is expected tocontribute at least 50% .Indian Cement Industry today ranks Second in the world, producing quality cement that matches the world’sbest and has its footprints in around 30 countries of the world through Cement/Clinker exports.Cement Industry with categorical demand from Housing 64%,Industrial 6%,Commercial & Institutional13%and Infrastructure 17%, has also its bearing on other sectors of economy like Power,Steel,Real Estate ,Coaland Transportation.As envisaged in the Budget 2012,Government’s plan for massive infrastructure development in Housing,Roads & Highways,Railway,Aviation,Power & Utilities etc. ,cement industry is set to play a crucial role toprovide the impetus to the growth of the country.This presentation is meant to give an overview of the Cement Industry and its manufacturing process tohave an insight of the industry in view of audit. - Saurabh Pandey firstname.lastname@example.orgemail@example.com Source:CMA,Business Standard, Parliamentary Report on Cement Industry 3
CementCement is a mixture of compounds, consistingmainly of silicates and aluminates of calcium,formed out of Calcium Oxide, Silica, Aluminumoxide and Iron oxide. Cement is manufactured byburning a mixture of limestone and clay at hightemperatures in a kiln, and then finely grindingthe resulting clinker along with gypsum. The endproduct thus obtained is called Ordinary PortlandCement (OPC). In India, OPC is manufactured inthree grades, viz. 33 grade, 43 grade and 53 grade,the numbers indicating the compressive strengthobtained after 28 days, when tested as per thestipulated procedure. Apart from OPC, there areseveral other types of cement, most of themmeant for special purposes, e.g. SulphateResistant Cement, Coloured Cement, Oil wellcement, etc. However, there are some generalpurpose cements, the commonest one beingPortland Pozzolana Cement (PPC)and Portland 4slag Cement (PSC).
“Cement is one of the fundamental elements for setting up strong and healthy infrastructureof the country and plays an important role in economic development and welfare of the nation “• In India there are around 365 Small and 140 large cement plants, combined production capacity of which is Approx. 234 Million Tones. Keeping the tune with global standard, the Indian cement industry has transited itself into more advanced one .• At present Indian cement industry is positioned at second after china.• The capacity of the sector which was 29 MT in 81-82,rose to 219 Mt at the end of FY 09.it took 8 decades to reach the 1st 100 MT capacity ,while the 2nd 100 MT was added in just 10 years.• According to Indian cement industry forecast to 2012 ,Indias cement production will grow at a compound annual growth rate (CAGR) of around 12 % during 2011-12-13- 14 to reach 303 MT as against 234 MT capacity of present.• CMA is targeting to achieve 550 MT capacities by 2020. 5
• With resumption in housing market ,regular government spending on rural sector and infrastructure spend and permission of 100% FDI in cement industry ,growth in domestic cement demand is likely to remain strong.• Given the soaring potential for growth, few MNC’s have been eying the Indian cement market and planning to acquire domestic companies. Companies like Lafarge ,Heidelberg and Italicementi have made couple of acquisitions ,Holcim have increased stake in Ambuja Cements and ACC to gain full control. During FY 11 Ultrtech merged itself with Samrudhi cement to become largest cement company in the country .• German cement major Heidelberg and domestic giants including Ultratech and Reliance Cements have evinced interest to be the joint venture partner in state run Rashtirya Ispat Nigam ‘s proposed Rs 1000 Cr. 3 MTPA cement plant at Vizag.• To magnetize investors for tapping the infrastructure opportunities across the country and in turn to provide required stimulus to Indian cement industry ,Govt has taken initiative like Introduction of Tax free bonds,Formation of infrastructure debt fund and formulating a Comprehensive policy for developing Public Private Partnership projects (PPP’s). 6
Cement- Input/Output OverviewRaw Process Product/OutputMaterial/Input • Mining Clinker/RMC• Limestone/Soil • Crushing OPC (Non-• Gypsum/Slag • Grinding Slag)• Coal • Blending PPC• Pet coke • Pre-Heating PSC/PBFSC• HSD Oil • Clilnkerization GGBS• Fly Ash • Cement Grinding Power Misc. Exp. Freight • Electric • Vehicle & • Limestone Supply –Grid Equipments lifting and Power • Material movement • DG Set &Instruments from mines to (Own etc. plant Generation) • Operational • Fuel and other &Functional inputs Exp. • Distribution of Product 7
Excavation from mines(Blasting) → Crushing → QC of Crushed Limestone → Pre BlendingStock Pile → Grinding at VRM → Blending Silo→ Pre Heating → Calcination → Cooling →Clinker → Mix of gypsum → Cement Limestone is excavated from mines .sometimes clay or any other raw material is added to improve the quality of raw material excavated. Huge and large lime stones now dumped into crusher to convert the stones into small and manageable chunks of around 20 mm size. limestone obtained from crusher goes for quality check .now after sorting out unsuitable limestone passing through conveyor belt it goes to vertical raw mill (VRM) for grinding material. Now through conveyor belt powdered from of RM comes to Blending silos to mix them homogeneously. Before calcination it comes to preheating and then to kiln for calcination @ tempo of 1400-1500°C. After calcination RM get cooled to get Gray colored nodules which is called Clinker. Then clinker stored in silos for further processing on cement milling. Clinker when mixed with gypsum produces cement. 9
Cement Production Process –Flow Chart of Raw Material processing Quarrying Crushing Pre-Blending Raw Grinding & BlendingMines Finish Grinding Burning Packing & Distribution Clinker Cooling 11
Cement Manufacturing Process in detail The production process for cement consists of drying, grinding and mixing limestone and additives like bauxite and iron ore into a powder known as “raw meal”. For producing OPC, clinker The raw meal is then heated and burned in a pre-heater and kiln and and gypsum are used and for then cooled in an air cooling system to form a semi-finished product, producing Portland known as a clinker. Clinker (95%) is cooled by air and subsequently *Pozzolana+ Cement (“PPC”), ground with gypsum (5%) to form Ordinary Portland Cement (“OPC”). clinker, gypsum and fly ash Other forms of cement require increased blending with other raw materials. are used. In the production of Portland Blast Furnace Blending of clinker with other materials helps impart key characteristics Stag Cement (“PSC”), to cement, which eventually govern its end use. granulated blast furnace slag from steel plants is added to There are two general processes for producing clinker and cement in India : a dry process and a wet process. clinker. The basic differences between these processes are the form in which the raw meal is fed into the kiln, and the amount of energy consumed in each of the processes. In the dry process, the raw meal is fed into the kiln in the form of a dry powder resulting in energy saving, whereas in the wet process the raw 12 meal is fed into the kiln in the form of slurry.
About the Industry Indian Cement Industry as on 31st March 2011 Name of cement company Installed capacity(MT) Statistics - Large Cement Plants Grasim Industries Ltd 25.65 42 Ultra Tech Cement Ltd 24.3Companies (Members) (Nos.) JP Associates Ltd 17.15Cement Plants (Nos.) 139 India Cements Ltd 14.05Installed Capacity (Mn. t.) 234.3 Madras Cement Ltd 13.72 168.29 Shree Cement Ltd 12Cement Production (Mn. t.) 2010-2011 Dalmia Cement Ltd 9Plants with Capacity of Million tonnes and 97above (Nos.) JK Cement Ltd 8.42 Chettiand Cement 8.2Manpower Employed (Nos.) Approx. 1,20,000 Century Tetxtiles And ind 7.8Turnover in 2010 (Mn. US$) around 18,000 Lafarge India P Ltd 7.55 Birla Corp Ltd 7.38 Statistics - Mini & White Cement Plants Kesoram Industries Ltd 7.25Cement Plants (Nos.) Approx. 365 Penna Cement Ltd 6.5Installed Capacity (Mn. t.) 11.10 (P) Binani Cement Ltd 6.25 6.00 (P) Total Capacity held by majors(77 175.22Cement Production (Mn. t.) 2010-11 % of Industry) Source -CMA Others (23 % of Industry) 51.68 13
About the Industry Regional Capacity Western 13% Eastern 14% Southern 41% Northern 21% Central 11%Presence of Cement Industry in Indian States 14
About the Industry Our country is the second major cement producing country following the China. we have 140 large and 365 mini cement plants. Leading players in the Industry are - Ultratech,Gujarat Ambuja,JK Cement,ACC, Madras cement etc. Southern region in the country is the biggest contributor in cement production . India has total capacity of 226.90 MT as on March 2010 comprised of Northern region 48.27 MT, Central region 26.01 MT, Eastern region 31.89 MT ,Western Region 28.62 MT and southern region 92.11 MT. Rajasthan, AP, Tamilnadu,MP,Gujarat are the prominent cement industry contributor states .the southern region has an excess capacity trend owing to profuse availability of limestone ,the Western and Northern regions generally has more demand than availability. Bangladesh ,Nepal,Sri Lanka,Maldives,Mauritius and UAE are major export destinations for the cement industry.Export constitutes less than 1% of the capacity India is largely self-sufficient in cement production and its import is less than 1 million tonnes. 15
Cost & Price Contributing Ratio-Industry Feature Power Elements affecting Price of Cement Others • Excise/Duty and Gov. levies(Electricity 38% 30% Duty,Royalty on Limestone,Entry Tax Water Cess,Rural Infra. Tax etc.) Raw Freight • Freight Material 15% • HSD 17% • Coal/Pet coke • Season/Mansoon • Rupee Escalation/Fiscal PolicyRaw Material Power Freight Others• Limestone • Electric • Transporters • Material &• Gypsum/Slag supply • Own vehicle Equipments• Coal • DG Set • Toll charges • Instruments• Pet coke • Penalties • Operational• HSD Oil etc. &Functional• Fly Ash Exp. 16
Initiatives for the Costing and Pricing elements-Cost Control• Limestone-Due to limited resources of Limestone ,there are talks with National council for cement and building materials (NCCBM) for R& D of Geopolymeric Cement which require some chemical bonding instead of Lime to avoid paucity of lime and soil erosion.• Fly Ash & Slag-To reduce consumption of limestone and to conserve it, substitutes are being used like substitution of clinker by using fly ash and blast furnace slag.• Utilization of Fly ash procured from Power Plants and slag generated from steel plants reduces dust emission by 9800 tonnes /annum and CO2 emission by 33.6 million tonnes/annum• Concerns have been raised for depriving to use own Fly ash being produced by captive power plants of cement industry as cement industries are compelled to supply 20 % of their own fly ash to manufacturers of Fly ash Bricks,tiles etc.• Fuels-To conserve fossil fuel energy resources and minimize the adverse impact of Global warming ,co-processing of industrial waste like Paint sludge,Refinery sludge,Plastic waste and Tyre chip,Red –mud and other than industrial waste like Rice husk and cow dunk are being used by cement manufacturers.• Power -Cement industry has vast untapped potential for cogeneration of power by waste heat recovery as 30-40% of total heat input is released as waste heat from exit gases.it is estimated that 4.4 MW of electricity can be generated from 1MTPA capacity plant by waste heat recovery. 17
Initiatives for the Costing and Pricing elements-Cost Control• Coal-Govt has to take necessary steps to sufficient allocation of coal linkage through Fuel supply agreement (FSA) to cement manufacturers so as to avoid use of Petcoke as subsidiary and resorting to import of coal/petcoke.• Presently two indigenous coal suppliers of cement industries i.e. Coal India Ltd. And Singareni Colleries Co.Ltd.are supplying only 48 % of total requirement due to this FSA and Linkage procedure of Ministery of coal ,obliging cement manufacturers to source their fuel requirement from various other avenues.• High taxes and Levies- Since Taxes and levies on cement constitute 60% or more of the Ex-factory price ,CMA has submitted a report “CEMENT INDUSTRY – PRE-BUDGET MEMORANDUM – 2012-13 to address the following issues to the Government-1. Uniform and specific rate of Exicse Duty on cement instead of composite rate on MRP2. To scrap duty on Coal,Pet coke ,Gypsum and other fuels being used as raw material input .As due to short supply of indigenous coal ,Cement Manufacturer is heavily dependent on Imported coal and Pet coke.3. Abolition on import duty on Tyre Chips which is being used by the industry as an alternative fuel.4. To classify cement as Declared Goods in excise to put it on equal footing with other core sectors like coal,steel,crude oil,jute,cotton yarn etc. 18
Audit Environment of Cement Industry-A view Mines (Limestone) Corporate infrastructurePlanning & IT and Management Procurement of Analysis Data compilation and RM etc. generation Accounting Environment SOP Sales & Production Distribution 19
Audit Process –An overview• Types of RM • Requisition • Gate Receipt (Entry)• Resources of RM and • Approval & Authority • Weighment & Inspection market condition • Quotation and selection • Quality Check & Approval• Periodical budget of RM • PO • Recording and processing• Procurement of RM → • Terms of PO → • Storage and allocation• Storage of RM • User’s specification and• Allocation of procurement compliance • Documentation• Recording of procurement • Necessary follow-up and • Intimation to Finance and documentation action deptt.(Accounts/Tax) ↓• Buyers and agreements • Production detail • Consumption• Transportation and • Packing & storage • MIS of consumption contracts • Quality measures during pattern• Dealers arrangements ← packing and control ← • Analysis of consumption• Credit patterns and control • Tagging and stitching report• Debtors control and management • Waste and control • Actions on analysis report• Sales Vs. Production • MIS of Production • Industry pattern and• Demand & Supply of market reported deviation ,if any• Excise & VAT/CST 20
Some facts about the Industry in terms of Recent Developments Steps for alternative fuels –Energy saving and reduction of carbon emission “If the Indian cement industry can increase thermal substitution to just five per cent, GHG (greenhouse gas) emissions could reduce by over 17 lakh tonnes of carbon annually,” - Mr G. Jayaraman, Executive President of Birla Corporation Ltd.• Madras Cement Ltd, the flagship company of Ramco Group, is using waste materials like Rice husk, Hazelnut shells, Paper sludge or cow dung as alternative fuels and saving over Rs 8 crore annually.• UltraTechs Gujarat Cement Works is utilising Tyre chips, Rubber dust and other such material, resulting in reduction of about 30,000 tonnes of carbon emission a year. And that Lafarges Arasmeta plant is substituting almost 10 per cent of the coal used in its kilns with Rice husk to increase energy savings and reduce carbon emission.• Indeed, cement majors are increasingly burrowing through newer industrial, municipal and agricultural wastes to utilise these as alternative fuels to fire their kilns, not only to save costs but also contribute to Indias efforts to snip carbon intensity by 25 per cent of 2005 level by 2020.• This is part of a world-wide trend in the cement sector, with the Japanese cement industry utilising over 450 kg of waste per tonne of cement manufactured and European plants achieving a thermal substitution rate of over 40 per cent. 21
Some facts about the Industry in terms of Recent Developments• India produces over six million tonnes of hazardous waste and about 50 million tonnes of non-hazardous and municipal wastes, apart from a large quantity of agro-waste. With cement making capacity set to increase from about 320 million tonnes this fiscal to 550 mt by the end of the next Plan Period, industry planners feel that cement makers should further sharpen focus on alternative fuels.• Cement majors are taking new initiatives in this direction. Madras Cements Alathiyur plant, for example, has demonstrated that burning of pet coke and alternative fuels such as coffee husk and cashew nut shells could result in a saving of Rs 8 crore annually — its average pet coke consumed is about 82,000 tonnes and alternative fuel about 9,000 tonnes.• Similarly, India Cements Ltds Dalavoi plant has shown that consumption of just 30 tonnes of LSHS sludge, which has a heat value of over 9000 kCal/kg, can result in savings of about Rs 3 lakh annually.• Dalmia Cement has identified ‘red mud as an effective substitute for high-cost bauxite (used as additive to manufacture clinker) — this is an industrial waste from Malcos aluminium plant.• ACCs Madukkarai unit launched Project Zero Fuel Cost in early 2010, when thermal substitution rate was 0.9 per cent. It increased the rate to 3.41 per cent by use of wastes from textile units, rejected shampoos and face powder and plastic. 22
Latest : Cement Cartelization(Penalty on Cement giants) Impact• The CCI passed the order following a probe by the Director General of Investigation on a complaint filed by Builders Association of India. Cement companies have been under scrutiny since past one year.• CCI felt the cement firms’ act of controlling supplies and determining prices was not only detrimental to consumers but also to the economy since cement is a crucial input in construction. India is the second biggest producer of cement after China with a capacity of 310 million tonnes.• The Competition Commission of India (CCI) has levied a penalty of over Rs 6,300 crore on 11 cement companies for price cartelisation.• These companies have to pay 50 per cent of their profit for the fiscal years ended 2010 and 2011 within 90 days. However, almost all the companies plan to contest the order. The industry body Cement Manufacturers Association has also been fined Rs 73 lakh for providing the platform for cartelisation. 23 Presentation to be circulated to the Professional Staff of SS Kothari Mehta & Co.