Reliance Cement to Invest $2.43 Billion in Manufacturing Facility

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Researched by Industrial Info Resources (Sugar Land, Texas)--In the wake of its recent win of the 4,000-megawatt ultra-mega power project at Sasan, Madhya Pradesh, the Reliance Anil Dhirubhai Ambani Group (R-Adag) (Mumbai, Maharashtra) plans to set up a 20 million-tonne-per-annum (TPA) cement manufacturing facility on 1,306 hectares near Satna. Reliance Cement, which was incorporated in October last year as a new arm of R-Adag, will pump in $2.43 billion toward the construction of four 5 million TPA units in Satna. This is slated to be the nation's largest facility in terms of capacity and will propel Reliance Cement as the third largest player in this sector after ACC Limited (Mumbai, Maharashtra) and Grasim (Nagda, Madhya Pradesh).

R-Adag spent more than a year scouting the state for limestone mines and has filed applications for seven mines in this region. Limestone is one of the requisite ingredients for the cement plant The company has recently secured a prospective license for one, which has 250 million tonnes of reserves capable of supporting a 5 million-tonne cement plant. The company has also applied for dedicated coal linkages and captive coal mines for its cement units.

The proposed facility is favorably located in proximity to the upcoming coal-based power plant at Sasan from which it can source fly ash, a byproduct of the power plant that serves as another key ingredient in the manufacture of cement. The proximity will obviate the need for transportation, which usually accounts for 17% of the production costs. Use of fly ash will also relieve the power plant of the challenge to transport and dispose off a material that has adverse environmental effects.

R-Adag will commence the first phase of operations by next month, and the unit is expected to come into operation by 2012. Following in R-Adag's footsteps is National Thermal Power Corporation (NTPC) (New Delhi), the nation's largest player in the power sector. NTPC plans to establish cement-manufacturing facilities in the vicinity of six of its power plants through partnerships with private enterprises.

India currently stands as the world's second largest cement market. Prices of cement have risen as much as 30% to 34% in the last year. The nation's current manufacturing capacity is 189 million TPA, which is expected to increase to 245 million TPA by 2010.

However, analysts are apprehensive that cement supply will greatly surpass demand by the time such large-scale projects go on stream, resulting in reduced returns. Cement manufacturers currently thrive on huge margins, which may buckle under competitive pressure in the face of R-Adag's massive undertaking.

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