strategy cement project

8/2/2019 Strategy Cement Project

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Introduction

History

The use of cement in Nepal as binding material came into effect in Nepal from the

beginning of early 1950's. As no indigenous cement manufacturing industry existed, early

users of cement were dependent on imports from India to meet their needs. Gradually,

around 1965, the supply of cement was diversified in the form of foreign aid programme.

The cement was started to import in commercial scale only in the early 1970's from China,

South Korea, North Korea, Burma, Indonesia, Thailand, Japan, Hong Kong and many other

countries.

In 1975, the first cement plant, Himal Cement Company Limited, came into being to

provide Nepal's first state owned cement manufacturing facility. Its production capacity

initially was 160 tpd and subsequently a new Chinese plant with the production capacity of

200 tpd was added making total capacity of 360 tpd. Then two additional plants, one at

Hetauda, Hetauda Cement Industries Limited with the production capacity of 750 tpd and

other at Udayapur, Udayapur Cement Industries Limited, with the production capacity of

800 tpd were added to the state cement manufacturing capability. Himal Cement Company

was dissolved in 2002 due to environmental cause.

Current scenario

Nepal is enriched wi th large and smal l deposits of good cement g r a d e

l i m e s t o n e . T h e l i me s to n e d e p o si t s o c c ur w i t h in t h e s e q u e n ce o f t h e

Le ss er Him al ay as ex te nd in g fr om th e ea st to west. Limestone is by far the

most important mineral resource in Nepal, followed by magnesite, marble, lead and zinc.

So far, this is also the most economically viable mineral resource. A total of

about 1,250 million tons of cement grade limestone is estimated to exist in the country

and the existence of a t l east 224 million t o n s h a v e b e e n c o n f i r m e d

t h r o u g h d r i l l i n g s a n d d e d i c a t e d surveys. E ven w hen o nly a few


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deposits are being exploited for commercial production of cement and allied products,

limestone still tops the listof the most exploited mineral resources in Nepal

At present, in addition to two public sector cement industries and three private mini

integrated cement industries, company registration book of the Department of Industries

shows 27 mini, medium and large scale integrated cement industries and 17 mini and

medium scale clinker based industries are registered. List of registered cement industries is

given in Table 1.

Table 1: Cement industries registered in Department of Industries

S.

No.

Name of industry

Installed capacity (MT)

Clinker

MT/PACementMT/PA

A. Public sector

1. Himal Cement Company Dissolved Dissolved

2.Hetauda Cement

Industries Ltd.247,500 259,875

3.Udayapur Cement


Sub - Total (A) 511,500 537,075

B. Private Sector

I. Integrated cement industries

1. Maruti Cement Udhyog 150,000 157,500

2. Triveni Cement Udhyog 9,900 10,395

3. Pancha Ratna Udhyog 15,000 15,750


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4.Butwal Cement Mills

Pvt. Ltd.30,000 31,500

5.

National Cement Pvt.

Ltd. 60,000 63,000

6. Surya Cement Pvt. Ltd. 120,000 126,000

7. Balaji Cement Udhyog 30,000 31,500

8. Kanak Cement Pvt. Ltd. 120,000 126,000

9. Budhha Cement Pvt. Ltd 60,000 63,000

10.Laxmi Cement Industries

Pvt. Ltd.90,000 94,500

11.Manakamna Cement Pvt.

Ltd.30,000 31,500

12.Buddha Cement

Industries300,000 315,000

13.Gorkhali Cement

Udhyog Pvt. Ltd.75,000 78,750

14.Sidhhartha Cement

Udhyog150,000 157,500

15.Dynasty Industry Nepal

Pvt. Ltd.

90,000 94,500

16.Reliance Company Pvt.

Ltd.150,000 157,500

17. Shivam Cement Pvt. Ltd. 150,000 157,500


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18. Kalash Cement Pvt. Ltd. 45,000 47,250

19.Dang Cement Industries

Pvt. Ltd.237,600 249,480

20. Om Cement Pvt. Ltd. 39,600 41,580

..contd

S.

No.Name of industry

Installed capacity (MT)

ClinkerMT/PA

CementMT/PA

21.Shyam Mineral

Industries Pvt. Ltd.60,000 63,000

22.Koshi Cement Udhyog

Pvt. Ltd.10,500 11,025

23.KP Cement Industries

Pvt. Ltd.43,000 45,150

24.Jaybageswori Cement

Industries15,000 15,750

25.Jayakali Cement Udhyog

Pvt. Ltd.12,000 12,600

26.Sagarmatha Cement Pvt.

Ltd.163,721 171,907

27.Shiva Shree Jagadamba

Cement Mills120,000 126,000


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Sub Total (B - I) 2,376,321 2,495,137

II. Clinker based cement industries

1. Lumbini Cement Pvt.

Ltd.150,000 157,500

2.Mittal cement industries

Pvt. Ltd.30,000 31,500

3.Dynasty industry Pvt.

Ltd.30,000 31,500

4.Cosmos Cement


5.Pashupati cement Pvt.

Ltd.132,000 138,600

6. Vijaya Cement pvt. Ltd. 90,000 94,500

7.Chitwan cement Udhyog

pvt. Ltd.30,000 31,500

8.Jagadamba Cement

Industry Pvt. Ltd.66,000 69,300

9.Narayani Cement udhyog

Pvt. Ltd.15,000 15,750

10. Krishna Cement Co. Pvt.

Ltd.60,000 63,000

11.Brij Cement industries

Pvt. Ltd.60,000 63,000


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12.Bishworkarma Cement

Pvt. Ltd.132,000 138,600

13.

Amber industries Pvt.

Ltd. 45,000 47,250

14. Suprim Cement Pvt. Ltd. 150,000 157,500

15.Nepal Ambuja Cement

udhyog60,000 63,000

16. Ambe cement Pvt. Ltd. 90,000 94,500

17.Shree Cement industries

Pvt. Ltd.60,000 63,000

Sub Total (B II) 1,290,000 1,354,500

Grand Total (A+B) 4,177,821 4,386,712

Source : Department of Industry

Among 27 mini, medium and large scale integrated cement industries in private sector, 12

industries are producing cement. Similarly, out of 17 mini and medium scale clinker based

industries, 11 industries are producing cement. The list of industries is shown in table 2.

Table 2: Cement industries under production, installed production capacity and

estimated production in 2005/06

S.

No.

Name of industries

Installed

capacity

Cement

(MT/PA)

Installed

production

Cement (MT/PA)


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A. Public Sector

1. Himal Cement Company 124,740 Dissolved in 2002

2. Hetauda Cement


3.Udayapur Cement


Sub - Total (A) 532,075 212,830

B. Private Sector

I. Integrated Cement industries

1. Maruti Cement Udhyog 157,500 63,000

2. Triveni Cement Pvt. Ltd. 10,395 4,158

3. Pancha Ratna Udhyog 15,750 6,300

4. Butwal Cement MillsPvt. Ltd.

31,500 12,600

5. Balaji Cement Udhyog 31,500 12,600

6.Budhha Cement Pvt.

Ltd.63,000 25,200

7.Manakamana Cement

Pvt. Ltd.31,500 12,600

8.Gorkhali Cement


9. Siddhartha Cement157,500 63,000


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Udhyog

10.Reliance Cement Pvt.

Ltd.157,500 63,000

11. Kalash Cement Pvt. Ltd. 47,250 18,900

12.Sagarmatha Cement Pvt.

Ltd.171,907 68,763

Sub - Total (B - I) 954,052 381,621

contd

S.

No.Name of industries

Installed

capacity

Cement

(MT/PA)

Installed

production

Cement (MT/PA)

II. Clinker based cement industries

1.Mittal Cement Industry

Pvt. Ltd.31,500 12,600

2.Dynasty Industry Nepal

Pvt. Ltd.

31,500 12,600

3.Cosmos Cement


4. Pashupati Cement Pvt.138,600 55,440


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Ltd.

5. Vijaya Cement Pvt. Ltd. 94,500 37,800

6. Chitwan Cement


7.Jagadamba Cement


8.Brij Cement Industries

Pvt. Ltd.63,000 25,200

9.Bishwokarma Cement

Pvt. Ltd.138,600 55,440

10.Nepal Ambuja Cement

Udhyog63,000 25,200

11. Ambe Cement Pvt. Ltd. 94,500 37,800

Sub-Total (B - II) 850,500 340,200

Grand Total (A + B) 2,336,627 934,651

Note: Cement industries under production are reported by dealers of various cement

industries. Source: department of industry

(Researched data)

Industry

Capacity and utilization


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In this study of cement industries 9 samples were taken from the central region which has

been diversely operating in the various part of the nation.(refer table 1) Basically the

factories lies on the semi urban area of that particular region where the public transport

facility are not so easily accessible. This is due to the limestone mines in that particular

region and also due to the pollution factor that the cement factory creates.

Talking about the promoters, most of them are the well known business tycoons of Nepal

and has the huge financial background. All of the promoters have their own business apart

from the cement industry like noodles, education, electronic, imports, garments,

manufacturing etc.

Cement industries are the booming industries in Nepal today. The industries have the great

potentiality in the market. Its said that the development of the country depends upon the

consumption of the cement in the nation. As the data total capacity of the industries is

24,450 TPD and the utilized capacity is 73%.

If we see the trend then there is a high demand in the market but the study shows that the

increase in the demand also increased the competition. Many new companies have come

into the market like Shivam cement, Kepy cement, Ghorahi cementetc and there is a cut

throat competition. The increase in the cement factory (integrated) has created an ease in

running the Nepalese clinker based industry which has to be imported from India

previously.

From the data and information given by various interviewee the cement factory has not

much of profit in todays context. The reason behind the decrease in the profit is due to

higher competition, power cut off, political instability, and cost of transportation etc. while

most of the companies are saying that their sales is going down but few companies within

that have different answers. They tend to keep their profit in increasing tend by pushing the

sales high in the market.

Company Dev region capacity Capacity

utilized %

investments Annual sales

(npr)

Annual

sales

(qty)


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kepy

cement

Central 1500 40 400000000 19000000 400000

Shivam

cements

Central 12500 100 4000000000 4500000000 250000

ghorahicement

Mid western 2400 50* 5000000000

Bishowa

Karma

Cement

Central 1000 75 450000000 1800000000 3600000

Jagadamba

Cement

Central 900 80 2750000000 5500000

Agni

Cement

Western 3000 65 3000000000 228000000 456000

brij cement midwestern 1000 50* 4000000000

Ambe

cement

central 1000 80 600000000 1854000000 3600000

CG eastern 1150 50* 990000000

Total 24450 Avg %=

73.33

18440000000

Annex 1 Avg-2808333333

Investments

However the demand for the cement is increasing with the growth of the urbanization and

development works. Many business people have seen the market opportunities in this

industry. Recently there have been huge investments in cement industry by various

business persons.

In the clinker based industries the investments are usually low. Depending upon the size of

production the capital varies. The minimum investment we found was of 40 corers of

keepy cement which was of clinker based and depending upon the size the cost increased

up to 99 corers Nepalese currency.

In the integrated side the investment is much higher than the clinker based. The investment

could not be done by the individual and the owner tie up with various banks for the

investment. The investments for the integrated company can be up to 300 to 500 corers.


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Here the informal sources are not taken into account and the banks are the primary sources

for the funding of the business. (refer table 1)

Cash cycles

the raw material for the cement industry is clinker and gypsum which is highly imported

from India. Recently some company like maruti cement, Shivam cement etc are producing

clinker which is cutting off the imports of clinker in the market.

Most of the cement industry relies on the imports of the clinker so the raw materials are

purchased from India. Being a import the payments has to be made in 100% advance basis

when the clinker is imported from India. Some companies which is dealing in Nepal for the

clinker has the benefit of having the clinker in credit too. Usually the credit is up to 75%

and 25% payment is to be made by cash.

On the other hand, if we see the sales side, the company here is selling the product in

credit. Some company sells their product even in 100% credit and some have the benefit of

selling the product 25%on cash and remaining on the credit.

This shows that the cash flow in the cement industry is low because they have to pay cash

and sell their product in credit.

the stock average of the raw material is for 23 days which has the average value of Rs

11,58,33,333 in the market. The use of raw material is on daily basis and the stock lasts for

30 days so the re-ordering period on average is about 30days for raw material. Whereas the

finished goods have to be dispatched as quickly as possible so the stock average for the

finished goods is less which happens to be 10-11 days and the value Rs 4,60,60,000. Since

the cement could not be stored for longer period the stock must be dispatched as quickly as

possible in the market. The price of the raw material and the finished product vary because

the raw material has to be bought at larger quantity and over the time the raw material are

transformed into cement as per quantity needed. The value of the finished goods is less

compared to the raw material because the data provided is of a lot basis.

refer to table 2 and 3


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Company stock avg raw material stock avg finished goodsno of days value no of days value

kepy cement 7 30000000

Shivam cements 1 150000000

Company pay suppliers cr period

(days)

sell product cr period (days)

cash% credit% advance% cash credit advance

kepy cement 100 0 3 97 30

Shivam

cements

50 50 21 50 50 21

ghorahi

cement

Bishowa

Karma

Cement

100 25 75 30

Jagadamba

Cement

100 100 45

Agni Cement 25 75 90 25 75 45

brij cement 30 70 365 30 70 180

Ambe cement 100 100 45

CG

Total 476 396

avg 119 58.5

Annex 2


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ghorahi cement

Bishowa Karma Cement 20 110000000 1 50000000

Jagadamba Cement 30 200000000

Agni Cement 15 37500000 2 200000

brij cement 30 40 100000

Ambe cement 60 150000000 1 7500000

CG

Total 155 497500000 52 237800000

avg 23.75 115833333.3 10.2 46060000

Internal operation of the companies

the cement factory in Nepal is highly affected by the political instability. Various strike,

bandas and load shedding are the major factors which affects the cement companies. The

average factory operating days for the cement factory is 258 days in a year. The factory is

closed in public holidays and for maintenance.

Under the 258 days too the workers work under the shift basis. Usually company has 2

shifts of 8 hours a day and some time when companies are in pressure to meet there market

demand has 3 shifts too.

The majority of the companies said that their sales is in increasing trend recently but t the

same time majority said that their inventory position is not increasing as the sales.

Refer table 4

Company Sales increasing? inventory position factory operating

days

yes no yes nokepy cement 1 1 255

Shivam cements 1 1 300

ghorahi cement 325

Bishowa Karma 1 1 300


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Cement

Jagadamba Cement 1 1

Agni Cement 1 1 60

brij cement 1 1 310

Ambe cement 1 1 300

CG

4 3 3 4 258(avg)

SWOT analysis for the cement industry

Strengths Weaknesses

Strong demand in Nepal and India has

pushed up the margin on cement

Local production of clinker has been

increased.

Significantly, Nepal has large proven

and probable limestone reserves.

Limestone is generally of good

quality (48% calcium oxide content).

Load shedding and increasing labor

issues

Low levels of relevant technical and

managerial skills and experience.

Cement demand is cyclical so a high

equity

component (D/E ratio of 70/30on avg and

80/20 at a minimum) is required in any

investment. Yet equity financing is

extremely difficult to source in Nepal and

most firms rely on retained earnings.

A time-consuming regulatory process.

Opportunities Threats

There is large unmet demand in Nepal: 3

tonnes is the global average annual per

capita consumption; in India it is 0.13 tonnes

Environmental damage from existing

(poorly

managed) plants will negatively affect the


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per capita and in Nepal just 0.06 tonnes.

A growing, urbanizing population.

Currently 90% of Nepal houses have dirt

floors room for growth. Cement demand is

growing at an estimated 10% per annum.

Currently Nepal imports 40% of its cement

from India (over 600 kms), which includes

substantial transport costs.

Further hydro projects will add massively

to demand.

Increasing rate of urbanization and

natural growth of real estate.

Demand for cement is also

increasing

There is possibility that in near

future import of cement from India

will decrease and most market is

expected to captured by Nepali

cement industry.

perception of future cement projects.

Need to negotiate land purchase from

many

landowners increases transaction costs.

Uncertain royalty payments under

Government Act.

Load shedding and unrest in the country

breaks supply chains and interrupts

production.

Sector supported by high ad-valorem

tariffs

of NR2,200/mt, equivalent to 25%. Nepals

ongoing trade reform and WTO

commitments are expected to bring these

down.

The primary investment climate constraints for the cement sector in Nepal are upstream.

Poor

Infrastructure, including roads and power, increase the costs of both plant construction and

operation.

There are also important regulatory issues which are discussed here including licensing andsubnational taxes and payments.


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Porters Five Forces Model

Threats of New Entrant (Medium)

Cement being capital intensive industry creates high entry barriers for new players.

On the other hand the existing companies are pushing hard to expand their

production capacity to face the rising competition which is also creating barriers for

new players.

Distribution Network is also weak which deters new entrants.

Mitigates

Where scale economies are important, pricing is a key weapon. However, when pricing

become predatory regulators tend to step in to protect new entrants. On the other hand

government intervention could help in strengthening distribution network.

Bargaining Power of Buyers (High)

Recently the cement industry is witnessing major change in purchase quantity. Now the

share of small purchase i.e. retail purchase have been decreasing whereas bulk purchase has

been rising to increase in construction work and urbanization.

Mitigates


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Driving price far below competitors,causing them to exist,shifting power back to firm.Joint

purchase can also help in this case.

Threats of substitute (Moderate)

There is no such substitute to cement though some uses timber and mud for

building houses but these days people prefer cement. Without cement, construction work

is next to impossible as it provides strength to the building. In near future there is more

probability that Nepalese cement will capture more market than today and import from

India will decrease further. Chances of government increasing the import duty in the near

future are very less as Government supports the domestic industries. Due to this there is

most likely that Nepalese cement substitute the Indian cement and increase their market

share.

Bargaining power of suppliers (Moderate)

Bargain power of suppliers is moderate because there exist many players in the market.

The buyers can easily switch the product depend upon the price and quality of the cement.

With some cement like Hetauda, Udayapur and recently upcoming Sivam cement the

supplier can bargain depending upon their quality of cement. In market we can find various

similar type of cement so Homogeneity is high.

Mitigates

Certain strategies, such as just-in-time manufacturing, or even just holding low stocks,

increase dependency on suppliers. The operational expenditure of profit and loss account

should be presented in a sufficient level of detail to identify major expenditure categories.

The bargaining power of suppliers for these services or goods should be addressed in

detail, and ideally there should be an analysis of the trend in pricing.


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Rivalry among the Firms (High)

Large number of players and High degree of product homogeneity creates intense rivalry

among the firms.

Mitigates

The best way to mitigate rivalry among firms could be by taking market share, i.e.

competition will intensify until some competitors exit or consolidation takes place.

Consumption of cement

The consumption has always been much below the market demand due to low supply

situation. The real demand is 10% - 20% higher than the apparent consumption. Moreover,

the consumption of cement by foreign aided project is not properly recorded. It is believed

that if there is regular supply of cement, donor agencies will also prefer the locally

available cement to imported cement. Also 20% - 30% of the total consumption of cement

is not recorded in the import statistics due to open border system between Nepal and India.

Those are the reasons for the lower apparent consumption of cement. If we consider all

above facts, the real demand of cement could be higher by at least by 30%.

Import of cement

The deficit in the supply of cement is met through import. Cement is imported from East

Asian countries and India. However, after the decontrol of cement by the then Government


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of Nepal, the import has been predominantly from India. Import from other countries is

negligible. People find it more beneficial to invest their saving either in gold or in

construction of building. Investment in industries and cash deposition in banks are no

longer attractive due to recession, conservative industrial policy, non-availability of

infrastructures like power and roads and lower rate of interest of the banks. However the

trend in the imports is slowing down from India because of the production of the Nepalese

clinker and cements.

1.4 Import of cement

The deficit in the supply of cement is met through import. Cement is imported from East

Asian countries and India. However, after the decontrol of cement by the then Government

of Nepal, the import has been predominantly from India. Import from other countries is

negligible. The import statistics of cement from India is presented in the table 7 and table 8.

Table 7: import of cement from India

Fiscal year

Import of cement from India

(MT)

1992/93 152,680

1993/94 218,115

1994/95 281,138

1995/96 296,995

1996/97 403,175

1997/98 468,256

1998/99 616,409

1999/2000 619,179

2000/01 1,264,803

2001/02 1,379,817

2002/03 1,329,574

2003/04 931,541

2004/05 1,085,920


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2005/06 646,207

Source: Import and export data published by Department of Custom, copy in

2008. As import figures from 2000/01 2005/06 were not published these were copied

from the records of Department of Custom.

Table 8: Cement imported from India

Fiscal

year

Quantity

(MT)

Amount

(Rs. in '000)

Price/tonneQuantity

(MT)

Total quantity

(MT)

(1) (2) (3) (4 = 2/3) (5 = 1 + 4)

2000/01 875,019 2,104,835 5,400 389,784 1,264,803

2001/02 909,195 2,588,424 5,500 470,622 1,379,817

2002/03 851,784 2,704,291 5,660 477,790 1,329,573

2003/04 563,661 2,185,209 5,940 367,880 931,541

2004/05 696,667 2,475,907 6,360 389,293 1,085,960

2005/06 424,434 1,543,542 6,960 221,773 646,207

Cement import figure show increasing trend. It is due to increase in construction of

residential buildings. People find it more beneficial to invest their saving either in gold or

in construction of building. Investment in industries and cash deposition in banks are no

longer attractive due to recession, conservative industrial policy, non-availability of

infrastructures like power and roads and lower rate of interest of the banks. But importing

of cement from India after the fiscal year 2002/03 shows erratic decreasing trend due to

conflict between GON and Maoists. People instead of investing money in building

construction, invested in gold and other trading activities.

1. Apparent consumption of cement

Based on tables 5, 6, 7 and 8 the apparent consumption of cement has been derived and

presented in table 9 below.


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Table 9: Apparent consumption of cement

Fiscal year

Domestic production

Import

***

(D)

Total apparent

consumption

(E=C+D)

Public

sector *

(A)

Private

sector **

(B)

Total domestic

production

(C=A+B)

1992/93 247,891 91,822 339,713 152,680 492,393

1993/94 315,514 91,822 407,336 218,115 625,451

1994/95 326,839 93,659 420,498 281,138 701,636

1995/96 309,466 133,860 443,326 296,995 740,321

1996/97 226,681 341,878 568,559 403,175 971,734

1997/98 139,080 443,518 582,598 468,256 1,050,854

1998/99 190,588 434,277 624,865 616,409 1,241,274

1999/2000 205,835 397,317 603,152 619,179 1,222,331

2000/01 215,098 378,837 593,935 1,264,803 1,858,738

2001/02 233,000 415,797 648,797 1,379,817 2,028,614

2002/03 255,171 1,482,190 1,737,361 1,329,574 3,066,935

2003/04 279,412 1,256,638 1,536,050 931,541 2,467,591

2004/05 277,736 1,578,854 1,856,590 1,085,960 2,942,550

2005/06 212,830 1,289,161 1,501,991 646,207 2,148,198

Source: * Economic survey, 2005/06 & 2006/07, MOF.

** Economic survey, 2005/06, MOF.

*** Import & export statistics, Department of Custom.

The consumption has always been much below the market demand due to low supply

situation. The real demand is 10% - 20% higher than the apparent consumption. Moreover,the consumption of cement by foreign aided project is not properly recorded. It is believed

that if there is regular supply of cement, donor agencies will also prefer the locally

available cement to imported cement. Indian aided projects brought cement from India

which is not recorded in custom points. Also 20% - 30% of the total consumption of

cement is not recorded in the import statistics due to open border system between Nepal


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and India. Those are the reasons for the lower apparent consumption of cement. If we

consider all above facts, the real demand of cement could be higher by at least 30%.

The total apparent consumption as depicted in Table 9 shows erratic trend in the cement

consumption. In order to remove distortion in consumption trend moving average method

is adopted which shows increased in cement consumption from 6% in 1995/96 to 52% and

65% in 2000/01 and 2002/03 respectively and similarly, cement consumption declined to

3% in 1999/2000 and 20% in 2003/04. However, the overall average consumption growth

rate comes to 17%. But for the purpose of consumption projection the growth rate of 10%

is adopted which is very conservative. This growth rate though lower will not affect the

validity of the market study.

Demand situation of cement

The table 10 demonstrates that there will be tremendous shortages of cement in the country

which is supported by the demand for and supply of cement. As discussed earlier too, the

performance of the public and private sector both responsible for cement production is

rather erratic and one can say that their performance may further deteriorate because of

reasons stated above.


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Demand and supply situation of cement

The table 10 demonstrates that there will be tremendous shortages of cement in the country

which is supported by the demand for and supply of cement. As discussed earlier too, the

performance of the public and private sector both responsible for cement production is

rather erratic and one can say that their performance may further deteriorate because of

reasons stated above.

Table 10: Demand and supply situation ofcement In '000 MT

Company future

expansion

if yes country

demand as per

interviewee

shortsell

ye

s

no tentative

investment

kepy cement 1 25000000 40% less

Shivam cements 1 40% less

ghorahi cement 1 3000000000 100000000 40% less

Bishowa Karma

Cement

1 5000000000 high shortsell

Jagadamba

Cement

1 200000000 no idea 40

Agni Cement 1 270000000 30% less

brij cement 1 3000000000 2700000

Ambe cement 1 5000000000 no idea 20%less

CG 1 2000000000 2260000 20%less

1299600007 2 18470000000 42566666.67

2294000000


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Fiscal

year

Annual

projected

consumption

* (A)

Public

sector

production

(B)

Private

sector

production

(C)

Total

existing

production

(D=B+C)

Balance

surplus

(+)

Deficit

(-)

(E=A-

D)

Deficit

to be

fulfilled

by

import

(%)

(E/A)

2007/08 3,080 239 1,450 1,689 1,391 45

2008/09 3,388 266 1,611 1,877 1,511 45

20089/10 3,726 266 1,611 1,877 1,849 50

20010/11 4,099 293 1,772 2,065 2,034 50

20011/12 4,509 293 1,772 2,065 2,444 54

20012/13 4,960 293 1,772 2,065 2,895 5820013/14 5,456 293 1,772 2,065 3,391 62

20014/15 6,001 293 1,772 2,065 3,936 65

20015/16 6,602 319 1,933 2,252 4,350 66

20016/17 8,262 319 1,933 2,252 6,010 73

20017/18 9,088 319 1,933 2,252 6,836 75

20018/19 9,997 319 1,933 2,252 7,745 77

20019/20 10,996 319 1,933 2,252 8,744 79

Note: * Projected by Arun Valley Hydropower Development Company Ltd.

Cement demand situation

Demand data are not available for projection. In the absence of data, cement market is

projected based on apparent consumption. So, projection given in this proposal is not

demand projection but consumption projection. As per consumption projection, the total

market for cement in Nepal is 3,080 million tonnes which is higher than the installed

capacity of operating cement industries. Even if the cement industries are in the position to

increase capacity utilization of existing plants to anywhere near their maximum potential,

the shortfall in demand and domestic production is very wide that is 1,391,000 tonnes. It

shows that 45% of expected consumption has to be fulfilled by the import mainly form

India.


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If one looks at the demand of cement in table 10, it is apparent that the market for cement

in Nepal is very much one of seller's market. However, it is also interesting to note that

customer preferences exist in relation to source of supply. Udayapur cement being the most

preferred as far as Nepalese cement is concerned, followed by Hetauda. Outside

Kathmandu valley, Indian cement is often first choice, not for reason of quality but because

of price and availability.

1.6.2 Cement supply situation

The domestic production both from public and private sector, and import from India and

other east Asian countries are the sources of supply. The public sector industries produce

only 239,000 tonnes which is 45% of total installed capacity of 532,075 tonnes. Himal

Cement Company is excluded. It no longer produce cement. At present public sector

industries are operating below 50% and they will utilize 50% of their capacity in 2009/10.

they will maintain 55% of their capacity during 2010/11 to 2014/15 and 60% during

2015/16 to 2019/20. similar is the case with other private sector integrated and clinker

based mini, medium and large scale industries (refer table 4). As per the capacity utilization

of existing cement production industries published in economic survey, 2006/07, the

production capacity was utilized 62% maximum in 1994/95 and it was 40% in 2005/06.

Therefore, examining the complex problems of cement industries in the country, they will

maintain only 60% of the capacity in the coming decade. Besides inefficient management

and adequate and timely arrangement of technical requirements for production, the power

load shedding severely affected the production.

The maximum supply of cement from public sector (319,245 tonnes) and private sector

(1,082,731 tonnes) will be 1,401,976 tonnes in 2015/16 which is not even sufficient to meet

present projected consumption of 3,080,000 tonnes no to talk of fulfilling demand for2015/16 which will be 6,602,000 tonnes. At this consumption projection point domestic

production will fulfill only 34% of the expected consumption rest 66 % has to be satisfied

through import. So there is wide scope of market to justify the establishment of proposed

Surkhet Cement Industry of 1500 tpd capacity. This study focused market analysis based

on the production of two public sector industries, twelve private sector integrated industries


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and eleven private sector clinker based industries. It is mentioned earlier that the

Department of Industry has registered forty three private industries both integrated and

clinker based. For the time being let us assumed that all industries registered under private

sector will go into production by the year 2011/12. the total production capacity of cement

will be 4,386,712 tonnes. Also it is assumed that they will maintain 55% of their capacity.

The expected production will be 2,412,692 tonnes whereas the projected annual

consumption will be 4,509,000 tonnes resulting the deficit in the supply of cement will

remain 2,096,308 tonnes. Even in this situation, the establishment of cement industry with

an annual cement production of 504,000 tonnes (1,500 tpd) is fully justified.

1.7 Cement supply source

In the main, the manufacturers sell the largest proportion of their production via National

Trading Limited, who in turn sell on to smaller dealers. They also sell directly to dealers.

Ex - works sales to the larger construction companies also occur, although in the majority

of cases tenders for the supply of cement for major contracts and to meet expected

shortfalls are taken up by Indian suppliers who are able to compete with lower prices

against the government fixed selling prices of Nepalese cement.

The supply of cement throughout Nepal is based entirely on 50 kg bags of cement packed

in jute bags or more often than not, poly bags which can be supplied from Nepalese sources

or from India. Typical loads are 200 bags of cement (10 tonnes). Small orders are referred

direct to a dealer outlet.

1.8 Future of cement industries

The future for Nepal's cement industry is reported to be very favorable. The market is

substantial relative to current production capability and installed production capacity. It is a

seller's market. Fourteen industries including two public sector industries have access tolimestone resources which are of cement quality and have sufficient reserves to meet

increased capacity and demand in the future. The market is growing. At present domestic

production is fulfilling 55%. This share will gradually decline as per our projection. The

domestic production will fulfill 53% in 2008/09, 35% in 2014/15 and 21% in 2019/20. The


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cement industry needs to improve its efficiency by dealing first with the shortcoming of its

present manufacturing facilities and then increase the current capacity to the higher level.

It is noted that the present 12 integrated cement industries do not have their own mines to

supply limestone except Maruti, Triveni and Panch Ratna Cement Udhyog. These

industries were give license to commence production of cement on the condition that they

will arrange their own mines within five years of operation. None of the industries were

fulfilling the conditions. Therefore, to increase the production of cement the GON must

extend five years condition and at the same time pay attention to revive sick industries and

give incentive to those industries which are still not under operation. If the GON is not

serious in talking the problems faced by these industries, the cement supply situation is

very bleak and Nepal has to depend heavily on the import. This will create problem of

timely availability of cement, hampering construction activities and ultimately adversely

affect the development work of the country.

Future of cement industries

The future for Nepal's cement industry is reported to be very favorable. The market is

substantial relative to current production capability and installed production capacity. It is a

seller's market. Fourteen industries including two public sector industries have access to

limestone resources which are of cement quality and have sufficient reserves to meet

increased capacity and demand in the future. The market is growing. At present domestic

production is fulfilling 55%. The domestic production will fulfill more share in future and

the competition will decrease the imports of cement from India. For this cement industry

needs to improve its efficiency by dealing first with the shortcoming of its presentmanufacturing facilities and then increase the current capacity to the higher level.

strategy cement project

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