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Cement cos devise ways to save on freight costs

Cement cos devise ways to save on freight costs
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First Published: Sat, Feb 17 2007. 12 50 AM IST
Updated: Sat, Feb 17 2007. 12 50 AM IST
India’s cement companies are taking a leaf out of the book of the country’s fast-globalizing steel companies.
Borrowing from the strategy pioneered by Tata Steel to produce primary products close to raw material sources and final products closer to the market, India’s cement companies are disaggregating their production facilities to optimize on rising freight costs.
“The mother unit is closer to the source of raw material and the grinding unit is closer to the market to save on freight,” says Manish Agarwal, general manager (treasury and corporate strategies) for Gujarat Ambuja Cement Ltd. Freight costs typically account for 30% of the final cost of production.
Splitting the units could help in saving around Rs100 per tonne of cement manufactured, says Manoj Gaur, president of the Cement Manufacturer’s Association. The production cost of a tonne of cement is in the range of Rs1,100-1,400. Thus, disintegrated manufacturing helps save as much as 7% of the total production cost in an industry in which the profit margin is around 30% of sales.
“Normally, the mother plants are closer to limestone reserves as it helps in clinkering. Manufacturing a tonne of clinker requires 1.5 tonnes of limestone,” says V.M. Mohan, vice-president (corporate finance), India Cements.
By locating grinding units closer to the demand centres, cement companies are emulating ready-mix concrete suppliers, who also set up units closer to the place where the concrete is to be poured. At the grinding unit, the clinker is ground into cement and mixed with fly ash, a by-product in thermal power plants.
Bulk clinker can be transported more cost-effectively than bagged cement. With freight costs rising substantially over the last one year, mainly due to the Supreme Court ruling, which banned overloading of trucks, the new production model allows cement manufacturers to keep logistics costs as a percentage of sales under control.
Gujarat Ambuja, with three feeder plants in Punjab and West Bengal, is setting up another three in West Bengal and Uttarakhand. ACC, India’s largest cement maker has a fly-ash grinding unit in Uttar Pradesh, two grinding units in West Bengal and a fourth one in Jharkhand.
Grasim Industries is adding grinding plants at Dadri, Panipat and Uttar Pradesh to complement two existing ones in Punjab and Maharashtra, says Sanjeev Bafna, joint president of Grasim. KC Birla, president and CFO of UltraTech Cement says the company that has five grinding is adding one more .
Thanks to disintegrated production, some South-based cement companies are now eyeing the Northern and Eastern markets. Significant freight costs involved in moving cement from one part of the country to another, have till now kept most cement companies restricted to one market or region. Now, India Cements plans to set up a grinding unit near Parli in Maharashtra, which has traditionally been a stronghold of the Ambuja, ACC and UltraTech cement trio.
Sreekanth Reddy, director, Sagar Cements, says, “It pays well to set up a grinding unit near high-consumption markets that have low-production capacities. If a grinding unit is set up on the Andhra-Orissa border, it will be closer to slag availability, a raw material for making slag cement, and nearer to the high-demand Eastern markets.”
shilpa.s@livemint.com
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First Published: Sat, Feb 17 2007. 12 50 AM IST
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