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
Industries Ltd.264,000 277,200
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
Industries Pvt. Ltd.90,000 94,500
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
Industries Ltd.259,875 103,950
3.Udayapur Cement
Industries Ltd.272,200 108,880
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
Udhyog Pvt. Ltd.78,750 31,500
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
Industries Pvt. Ltd.94,500 37,800
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
Udhyog Pvt. Ltd.31,500 12,600
7.Jagadamba Cement
Industries Pvt. Ltd.69,300 27,720
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.
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