India – Gypsum demand and supply

The cement industry in India is continuously growing. According to various research reports and in view of the upcoming massive infrastructure developments, the Indian cement consumption is expected to increase at a rate of 9-11 % per year. The rising costs of raw materials like gypsum (Fig. 1) and coal have been playing a heavy strain on the cement and construction industry. As result, Indian cement and plaster board companies have to explore alternate sources of gypsum and coal.

The Indian cement industry is comprised of 140 large and more than 365 smaller cement plants. It is the second largest cement producer in the world with an installed capacity of about 323 million t/a in 2011, surpassing the target of 298 million t/a fixed for the five-year period up to March 31st, 2012. Economic growth and cement consumption are directly proportional. The factors that could trigger cement sales are infrastructural demand especially for government projects, as well as higher housing demand in rural and semi-urban areas. Higher realization and rising dispatches are considered to be conducive for higher profits for the cement industry. All efforts are targeted to increase sales and reach the premium segment in prices. The major challenges faced by the Indian cement industry are higher raw material prices, especially the prices of coal, gypsum and fly ash.

India‘s cement manufacturing capacity may increase to 479 million t/a by the terminal year of the Plan XII, ending 2017, despite the existing over capacity scena­rio, as per projections made by a Planning Commission Working Group on the sector. The working group, which has already submitted its final report to the commission for preparing the roadmap for the sector in the plan period (2012–17), has projected an 10–11.75 % growth in demand, production and the installed capa­city of ­cement during the five-year period.

According to the Cement Manufacturers Association (CMA) and AT Kearney, India’s cement production will expand to 550 million tons by 2020 and its annual per capita use of cement will rise to 350 kg from 150 kg. McKinsey & Company is targeting to achieve 860 million tons cement capacities by 2030. According to the various research reports and in view of the upcoming massive infrastructure projects, cement consumption is expected to advance at around 10 % CAGR growth during 2012–2014 and thereafter around 9–11 % per year, which is anticipated to strengthen the long-term investment viability of the Indian cement industry.

The rising cost of energy, transportation and persistent raw material pressures (like gypsum and coal) have been placing a heavy strain on the cement and construction industry. As a result, Indian companies have to explore alternative sources of energy and raw materials.

Present gypsum sources (Figs. 1–2) for India

Local natural gypsum

Imported natural gypsum

By-product gypsum

Up to 2007-08, the Indian cement industry met their gypsum requirement predominantly from natural gypsum sources in Rajasthan and the by-product gypsum from industrial sources. However, such sources for gypsum peaked and stagnated and the incremental requirement was met by imports, mainly from ­Thailand and Iran. Thailand has already restricted the export of gypsum by quota and price control mechanism with a view to protecting the local cement and gypsum board manufacturing industry, and to preserve depleting mineable gypsum reserves. Iran could be a source of gypsum, but trade barriers will continue to obstruct the import of gypsum from there to India.

Union budget 2011, decided to bring down the import duty on the “critical raw material gypsum” by half to 2.5 % along with coal, the cement industry has been requesting a reduction in import duty on gypsum and coal from 5 % to nil to partly offset the rising manufacturing costs. In February 2011, the department related Parliamentary Standing Committee on Commerce recommended 0 % import duty on gypsum.

Local natural gypsum availability in India

India produced around 2.5 % of the world’s 146 million tons of natural gypsum in 2010. India is depleting the mineable gypsum, but has total recoverable ­cement and plaster grade gypsum reserves of 54 million tons of gypsum (as per 2005). The majority of this is located in ­Rajasthan (over 97 % of the total reserves). India produced around 16 million tons of gypsum during 2006-2010, an average of around 3-3.5 million t/a. In Rajasthan, gypsum mining is controlled by FCI Aravali Gypsum & Minerals India Ltd and Rajasthan State Mines & Minerals Limited. Rajasthan accounts for about 99 % of the total production of gypsum in the country, but as it is in North-West India, transportation costs are prohibitive for many cement producers located elsewhere in the country. The local gypsum production/availability is limited to 6-7 million tons per year (by-product gypsum and natural gypsum) and the balance demand will have to depend on imported gypsum.

By-product gypsum in India

As per the Indian Bureau of Mines (IBM) around 5 million tons of waste gypsum such as phosphogypsum, fluorogypsum etc., are being generated annually and for the last 3 years the cement sectors are only using around 2.25 to 3 million tons. Basically these quantities are almost constant and cannot be increased substantially due to higher transportation costs. Phosphogypsum is a by-product in the wet process for manufacturing phosphoric acid (ammonium phosphate fertilizer) by the action of sulphur acid on the rock phosphate. The other sources of phosphogypsum are by-products of the hydrofluoric acid and boric acid industries.

Imported natural gypsum

Indian cement producers are dependent on the import of high quality natural gypsum, mainly from Thailand. Other reserves that India could use are in the Sultanate of Oman and distant countries such as Australia, Mexico and Morocco. Thailand has proven and probable reserves of 200 million t, but their government is taking steps to increase the selling price of gypsum before stopping exports. Its efforts are based on the result of a study that used Hotelling’s concept of maximizing net present values to calculate the best way of using its gypsum mineral reserves for maximum profit, which found that the Thai government should push its gypsum price up to a level near the estimated future import price of 33 US$ per ton from the current FOB price of around 16.50 US$ per ton. At a certain point in time, the report recommended that the country should stop exporting its gypsum and devote the remainder of its resources to domestic consumption or face paying higher prices to import foreign, most likely Australian gypsum at prices more expensive than the current Thai FOB selling price in years to come.

At present, the Thai government has taken steps to stop new mines being opened and controls gypsum exports through a quota system, and has also divided the export market into different segments that prevent exporters from expanding into new markets. This has increased the selling price of Thai natural gypsum exports, but not significantly. “Substantial price increases may go against the agreements made by the World Trade Organization (WTO), of which Thailand is a member, and in this case the Thai government would have only one option: to stop gypsum exports at the earliest opportunity to take care of the country’s long-term local consumption needs”.

Importing gypsum from Iran is becoming difficult because of various restrictions/sanctions imposed by US/UN, and there have been challenges concerning payments to Iran, however few Indian traders are importing gypsum from Iran, routing the payment mechanism through other Iran friendly countries. According to the latest data, even banks from countries which do not ban financial ties with Iran may be reluctant to extend financing for fear of jeopardizing their US business, or because they fear being disclosed in the event of future sanctions. In June 2010, the UAE central bank told financial institutions to freeze Iran-linked accounts belonging to firms targeted by UN sanctions. ”Now, none of the UAE banks are opening a new account and letter of credit for any Iranian traders. Long term sustainable import of gypsum from Iran will continue to be a major risk for Indian gypsum consumers.

According to the Planning Commission Working Group on cement sector in view of the demand and installed capacity growth projections, the additional installed capacity (in addition to the present capacity of 323 million tons) requirement during the next 15 years (up to 2027) would be approx. 1050 million tones, as indicated in Table 1.

Opportunity for the Sultanate of Oman

This situation of potential shortfall in supply coupled with huge increase in demand for gypsum in India resulting from rapidly increasing cement production capacity, is expected to cause a significant price increase for gypsum in the years to come. It is against this backdrop that the potential supply of gypsum from the Sultanate of Oman (Fig. 3) becomes a very interesting prospect. The Omani gypsum export volume reached close to one million tons during 2011.

The Port of Salalah already started their massive expansion to handle the future general cargo including gypsum exports from the Sultanate of Oman. The 130 million US$ expansion projects will be completed by 2014 for handling a capacity of 40 million t/a of dry bulk commodities. The expansion program includes building 1266 m of linear general cargo berths with drafts of 18 m. This expansion is 100 % required in order to serve the local requirements.

“Even though gypsum accounts for just 2 to 3 % of the total cost of cement sales, Indian cement manufactures are likely to face issues regarding availability and costs of gypsum in the near future. They will be increasingly at the mercy of imported natural gypsum; it is against this backdrop potential that a supply of gypsum from Oman becomes a very interesting prospect and Oman gypsum exporters can forecast their FOB selling price above 16.50 US$ per ton in coming years. Indian cement manufactures can easily accept this price range, because this is going to be a minor cost increase of the total cost of cement sales and it can be adjusted against local cement transportation cost/and a marginal increase on the cement selling price etc”.

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