MARKET STRUCTURE OF INDIAN CEMENT INDUSTRY

Dalmia cement

Deepti Sharma. Himanshu Yadav. Saurabh Srivastava. Shreya. Sumit Agarwal

PGFB1113 PGFB1119 PGFB1141 PGFB1144 PGFB1151

INTRODUCTION TOP CEMENT COMPANIES PRODUCTION AND GROWTH MAJOR PLAYERS MERGERS AND ACQUISITIONS MARKET STRUCTURE CARTELS AND COLLUSIONS COMPETITION POLICY & REGULATORY FRAMEWORK IN INDIA

Cement industry is considered as one of the core infrastructure industries . Cement industry in India dates back to 1914, first unit in Porbunder. Fragmented industry : 56 cement companies in India operating 124 large plants & 300 mini plants Total Capacity in cement industry
Large Plants = 137 million tonnes) Mini Cement Plants = 11.1 million tonnes)

ACC LIMITED GUJARAT AMBUJA CEMENTS LIMITED ULTRATECH CEMENTS GRASIM INDIA CEMENTS JK CEMENTS LIMITED JAYPEE GROUP CENTURY CEMENTS BIRLA CORP.

As per the data released by the Cement Manufacturers Association, the production of cement in India, the second largest producer after China in the world, reached 160.31 Million Tonnes during FY 2009 10, up 12.37% from 142.65 Million Tonnes in FY 2008 09.  Growth was also recorded in sales, which increased by 12% to 159.43 Million Tones from 142.23 Million Tones during the review period.


Real estate boom, increased spending in the infrastructure by the government as well as the private sector, and elevated spending by the Indian government on different social programs are the main factors propelling the growth in the cement sector.

Cement is produced in 156 countries across the Globe. During 2008, the global production capacity of cement stood at around 2,872 million tones with China accounting for approximately 1,400 million tones and India a distant second with total production of 183 million tones. The production of Cement is highly skewed with top ten countries together accounting for close to 70% of total cement production. These countries account for close to 70% of total population.

Steps taken in the Union Budget 2011-12 include:

Allocation of Rs 2, 14,000 crore (US$ 46.5 billion) for infrastructure in 2011-12. This is an increase of 23.3 per cent over 2010-11. Government to come up with a policy for developing PPP projects. IIFCL to achieve cumulative disbursement target of Rs 20,000 crore (US$ 4.3 billion) by March 31, 2011 and Rs 25,000 crore (US$ 5.4 billion) by March 31, 2012. Under take out financing scheme, seven projects sanctioned with debt of Rs 1,500 crore (US$ 325.6 million). Another Rs 5,000 crore (US$ 1.1 billion) will be sanctioned during 2011-12. To boost infrastructure development, tax free bonds of Rs 30,000 crore (US$ 6.5 billion) proposed to be issued by Government undertakings during 2011-12.

Company ACC Gujarat Ambuja Ultratech Grasim India Cements JK Group Jaypee Group Century Madras Cements Birla Corp.

Production 17,902 15,094 13,707 14,649 8,434 6,174 6,316 6,636 4,550 5,150

Installed Capacity 18,640 14,860 17,000 14,115 8,810 6,680 6,531 6,300 5,470 5,113

The Indian cement industry is the second largest producer of quality cement, which meets global standards. The cement industry comprises 130 large cement plants and more than 300 mini cement plants. The industry's capacity at the end of the year reached 188.97 million tons which was 166.73 million tons at the end of the year 2006-07. Cement production during April to March 2007-08 was 168.31 million tons as compared to 155.66 million tons during the same period for the year 2006-07. Dispatches were 167.67 million tons during April to March 2007- 08 whereas 155.26 during the same period. During April-March 2007-08, cement export was 3.65 million tons as compared to 5.89 during the same period.

UltraTech Cement is going to absorb its sister concern Samruddhi Cement to become biggest cement company in India. World's leading foreign funds like HSBC, ABN Amro, Fidelity, Emerging Market Fund and Asset Management Fund have together bought 7.5% of India Cements (ICL) at a cost of US$ 124.91 million. French cement company Vicat SA bought 6.67% share of Sagar Cement at a cost of US$ 14.35 million.

Cimpor, a Cement company of Portugal, has bought 53.63% stake that Grasim Industries had in Shree Digvijay Cement. Holcim now holds 56% stake of Ambuja Cement. Previously it held 22% of stake. The company utilized various open market transactions to increase its stakes. It invested US$ 1.8 billion for that.

MARKET STRUCTURE CHARACTERISTICS OF OLIGOPOLY

(CEMENT INDUSTRY)

Number and size distribution of sellers Small numbers of sellers. Number and size distribution of buyers Unspecified. Product differentiation Product may be either homogeneous or differentiated. Conditions of entry and exit Entry difficult.

The Indian cement industry can be divided into five geographical zones NORTH SOUTH EAST WEST CENTRAL

Cartels and Collusion

Cartels are productive structures involving multiple producers acting in unison that allow producers to exercise monopoly power. Cartels are an attractive option when actions/operations of different firms are strategic complements rather than strategic substitutes. Cartels can be classified as explicit or tacit.

Small number of firms High concentration index Similar cost functions of firms High entry and exit barriers Trade associations Mutual trust Market transparency Demand fluctuations

-Positive -Positive -Positive -Positive -Positive -Positive -Positive -Positive -Negative

Customer Cartels

Customer cartels allocate customers or suppliers to certain producers Specialization cartels divided the market differentially. In Specialization cartels, members of the cartel assign lines of commerce/product or production techniques among themselves. Territorial cartels divide market share by allocating the area geographically

Specialization Cartels

Territorial Cartels

Quota Cartels

Quota Cartels limit the production output of participating members and thus artificially creating supply constraint. This leads to price fluctuations and also excess capacity is left with the firm. However in these cartels, there is greater probability of defection as monitoring is difficult.

Consumer

Protection Act.

Competition Act, 2002.

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