Indian cement companies are on the lookout for overseas mines to secure supplies of gypsum, a key ingredient for manufacturing the building material.
Domestic supply of gypsum is limited, say industry executives, which is forcing Indian cement makers to look for acquisitions of overseas mines or even look at producing a synthetic form of the raw material.
In the first such acquisition, one of the top three cement makers in India is likely to announce an acquisition of a gypsum mine overseas, which will act as a captive mine for the company, said a top cement firm executive on condition of anonymity.
Details of the acquisition will be announced soon, the executive said.
One tonne of gypsum in a reserve typically costs around $26-30 (Rs.1,560-1,800), and the average size of a mine overseas ranges between 30 and 40 million tonnes (mt), he added. This takes the minimum total cost to roughly $780 million.
Indian companies are eyeing reserves located in Thailand, Oman, Iran and other countries in close proximity to India.
According to a research report jointly published on 30 April by lobby group Confederation of Indian Industry and consulting firm AT Kearney, India has a paucity of gypsum resources, which does not bode well for the cement industry.
The production deficit in the domestic market has led to increased dependence on imports and synthetic gypsum to meet production demand, the report said. Manufacturing one tonne of cement generally requires 4-5% of gypsum as a raw material, it added.
In India, gypsum reserves are found in Rajasthan, Gujarat, Jammu and Kashmir, Himachal Pradesh, Tamil Nadu, and Uttar Pradesh. About 90% of the total Indian production of gypsum comes from western and north-western Rajasthan.
The report said that at present, usable gypsum reserves in India amount to 140-150 mt, of which around 125 mt is available to the industry. These numbers are for Rajasthan and Gujarat, as reserves in other states are unusable.
This available supply will be enough to support the cement industry for the next seven-eight years, beyond which the sector will need to rely on imports, the report added.
Vinod Juneja, managing director of Binani Cements Ltd, said that the shortage of gypsum domestically has forced the company to consider the possibility of overseas mine acquisitions, but the high cost of such acquisitions is a deterrent.
“We have looked at gypsum mines for acquisition in the Middle East, South Africa, and Iran, but the prices are too high so it does not prove to be viable since the returns are also not high,” he said.
“Gypsum is a very important raw material for cement production and we don’t want to depend totally on imported gypsum,” Juneja added.
Some others like JK Cements Ltd are yet to take a call on how to tackle the shortage of the raw material. “Gypsum is in shortage and we are working out a solution for it,” said Madhavkrishna Singhania, special executive at JK Cements.
“There are two options—either we acquire a mine overseas or produce synthetic gypsum, so right now we are contemplating these options and in a year or two we will have to figure out what needs to be done,” he added.
Analysts say that the acquisition strategy is feasible only for companies that have cement plants located close to a port.
“As far as overseas acquisitions are concerned, the logistics costs would be very high, specially to transport the material from the port to the plant and so it will only favour companies who have plants in close proximity to a port, however for others it will be a challenge,” said Rakesh Arora, managing director and head of research (India) at Macquarie Capital Securities (India) Pvt. Ltd.
“The cement industry has already started moving away from natural resource gypsum to chemical gypsum and phosphorous gypsum because of the limited reserves in India,” he added.
The most common solution to tackle the shortage is importing gypsum. However, imports attract a 2.5% duty, thus escalating costs for an industry which has been facing headwinds in an economic downturn. High transport, logistics and raw material costs have hit margins across the sector.
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