gagandsaluja
New member
BARRIERS TO ENTRY
Cement being a high bulk and low value commodity, outward freight accounts for close to one fifth of the total
manufacturing cost. In addition, for every tonne of cement produced, close to 1.7 tonnes of raw material
(including coal) is transported. In this scenario, the location of the cement plant becomes crucial. While deciding
on the plant location, there is a trade-off between proximity to raw material sources and proximity to markets.
A split-location cement plant can be a good compromise between the two options. The plant also has to address
issues of logistics (evacuation of cement by rail, road or waterways), power availability in the region, and
The first strategy is to locate manufacturing facilities near the consuming centres. In this case, outward freight
is minimised and marketing flexibility enhanced at the cost of higher raw material assembly costs. The second
strategy is to locate the plant close to the mineral deposits, so as to minimise raw material assembly costs. Given
that 1.4-1.5 tonnes of limestone are required per tonne of clinker, locating the plant along the limestone deposits
is the logical corollary. Occasionally, as in areas like Satna, Rewa, and Raipur, the coal pitheads are also quite
close by.
availability of materials (limestone, coal, slag, etc).
The bulk of the cement manufactured is consumed near urban centres. In the manufacture of cement, for every
1 tonne of clinker, about 1.6-1.7 tonnes of limestone and coal need to be assembled. For OPC, another 50 kg
of gypsum is required while grinding the clinker down. For PPC, up to another 250 kg of pozzolonic material
such as fly ash requires to be assembled. Thus, there can be two broad locational strategies, stemming from
the principal objective, which is not merely to minimise unit-manufacturing cost, but to minimise unit delivered
cost as well.
As cement is a low value, high bulk commodity, freight cost becomes a significant factor in deter mining the
landed cost of cement. This has resulted in a very low volume of inter national trade in cement. World cement trade has averaged just around 6-7% of the total production. Although, world trade in cement is limited because of high freight costs, there are countries, which either import
a significant share of their total consumption or export a major share of their total production. Countries, which
impor t a significant share of their consumption, appear to be falling in the developing world category, where
the public expenditure on infrastructure projects is very high. The Middle East countries (although not falling
in the developing world category) have huge requirements of cement because of construction work in projects
in the oil sector. Also in these countries, unfavourable conditions (for example, inadequate cement limestone
reserves) have discouraged cement capacity creation. Countries, which export a large share of their domestic production, appear to be having one thing in common.
Countries with high export thrust opt for bulk transportation for exporting cement. For example, by opting for bulk
transportation, Greece is in a position to export over 50% of its cement production. Bulk transportation leads
to significant advantages such as savings in freight costs and packing costs, avoidance of transit loss,
adulteration, pilferage, bursting of bags and damage to cement.
At the ex-factor y level, Indian cement is quite competitive with many global cement producing regions. However,
a plethora of duties along with infrastructure bottleneck reduces this competitiveness. As cement is primarily a
regional commodity, international competitiveness is not really a serious issue
Outward freight on cement is an important element in the operating cost of a cement plant. It accounts for around
one third of the total variable costs. Most of the cement plants in India are located in and around the limestone
clusters. These clusters are distant from the collieries and the markets for cement. Cement has an average lead
of around 535 km. Thus, cement companies have to rely on extensive transportation for moving coal from the
coal pitheads to the cement plants and for despatching cement from the plant to the markets. As both coal and
cement are of low value and bulky in nature, freight costs are considerably high for cement plants. Cement companies use both road and rail transport to transport cement and to receive coal. Rail despatches
amount for about 33% while roads carry the balance 66%. The balance 1% is accounted by Sea transporation.
The share of road over rail has only gone up over the years. For coal transportation, the dependence on rail
network is still very high and accounts for around 70% of coal movement Although rail transportation is more economical for distances beyond 250-300 km, cement companies have
started preferring road transportation even for longer distances because of several reasons. Rising railway traffic
coupled with insufficient investments by the railways for increased wagon supplies and the fact that the cement
industry is not an important customer of the Railways (cement cargo accounts for just 7-8% of the total railway
freight) have resulted in a shortage of wagon supply to the cement industry. The railways had launched the "Own
Your Wagon" scheme-a scheme where companies could buy wagons and lease it to the Railways and the
Railways would in turn operate these wagons and ensure their availability to the owner. But the unfavourable
ter ms and conditions of this scheme prevented its successful commercialisation. The The Railways have also
increased their tariff on a regular basis (often higher than the increases in the road sector), making them
uneconomical vis-à-vis road tariffs even for longer distances.
:cr-02902:
Cement being a high bulk and low value commodity, outward freight accounts for close to one fifth of the total
manufacturing cost. In addition, for every tonne of cement produced, close to 1.7 tonnes of raw material
(including coal) is transported. In this scenario, the location of the cement plant becomes crucial. While deciding
on the plant location, there is a trade-off between proximity to raw material sources and proximity to markets.
A split-location cement plant can be a good compromise between the two options. The plant also has to address
issues of logistics (evacuation of cement by rail, road or waterways), power availability in the region, and
The first strategy is to locate manufacturing facilities near the consuming centres. In this case, outward freight
is minimised and marketing flexibility enhanced at the cost of higher raw material assembly costs. The second
strategy is to locate the plant close to the mineral deposits, so as to minimise raw material assembly costs. Given
that 1.4-1.5 tonnes of limestone are required per tonne of clinker, locating the plant along the limestone deposits
is the logical corollary. Occasionally, as in areas like Satna, Rewa, and Raipur, the coal pitheads are also quite
close by.
availability of materials (limestone, coal, slag, etc).
The bulk of the cement manufactured is consumed near urban centres. In the manufacture of cement, for every
1 tonne of clinker, about 1.6-1.7 tonnes of limestone and coal need to be assembled. For OPC, another 50 kg
of gypsum is required while grinding the clinker down. For PPC, up to another 250 kg of pozzolonic material
such as fly ash requires to be assembled. Thus, there can be two broad locational strategies, stemming from
the principal objective, which is not merely to minimise unit-manufacturing cost, but to minimise unit delivered
cost as well.
As cement is a low value, high bulk commodity, freight cost becomes a significant factor in deter mining the
landed cost of cement. This has resulted in a very low volume of inter national trade in cement. World cement trade has averaged just around 6-7% of the total production. Although, world trade in cement is limited because of high freight costs, there are countries, which either import
a significant share of their total consumption or export a major share of their total production. Countries, which
impor t a significant share of their consumption, appear to be falling in the developing world category, where
the public expenditure on infrastructure projects is very high. The Middle East countries (although not falling
in the developing world category) have huge requirements of cement because of construction work in projects
in the oil sector. Also in these countries, unfavourable conditions (for example, inadequate cement limestone
reserves) have discouraged cement capacity creation. Countries, which export a large share of their domestic production, appear to be having one thing in common.
Countries with high export thrust opt for bulk transportation for exporting cement. For example, by opting for bulk
transportation, Greece is in a position to export over 50% of its cement production. Bulk transportation leads
to significant advantages such as savings in freight costs and packing costs, avoidance of transit loss,
adulteration, pilferage, bursting of bags and damage to cement.
At the ex-factor y level, Indian cement is quite competitive with many global cement producing regions. However,
a plethora of duties along with infrastructure bottleneck reduces this competitiveness. As cement is primarily a
regional commodity, international competitiveness is not really a serious issue
Outward freight on cement is an important element in the operating cost of a cement plant. It accounts for around
one third of the total variable costs. Most of the cement plants in India are located in and around the limestone
clusters. These clusters are distant from the collieries and the markets for cement. Cement has an average lead
of around 535 km. Thus, cement companies have to rely on extensive transportation for moving coal from the
coal pitheads to the cement plants and for despatching cement from the plant to the markets. As both coal and
cement are of low value and bulky in nature, freight costs are considerably high for cement plants. Cement companies use both road and rail transport to transport cement and to receive coal. Rail despatches
amount for about 33% while roads carry the balance 66%. The balance 1% is accounted by Sea transporation.
The share of road over rail has only gone up over the years. For coal transportation, the dependence on rail
network is still very high and accounts for around 70% of coal movement Although rail transportation is more economical for distances beyond 250-300 km, cement companies have
started preferring road transportation even for longer distances because of several reasons. Rising railway traffic
coupled with insufficient investments by the railways for increased wagon supplies and the fact that the cement
industry is not an important customer of the Railways (cement cargo accounts for just 7-8% of the total railway
freight) have resulted in a shortage of wagon supply to the cement industry. The railways had launched the "Own
Your Wagon" scheme-a scheme where companies could buy wagons and lease it to the Railways and the
Railways would in turn operate these wagons and ensure their availability to the owner. But the unfavourable
ter ms and conditions of this scheme prevented its successful commercialisation. The The Railways have also
increased their tariff on a regular basis (often higher than the increases in the road sector), making them
uneconomical vis-à-vis road tariffs even for longer distances.
:cr-02902:
