Cement News

How developers and contractors can respond to rising cement costs

[ad_1]

Cement prices have been marching upwards since June 2019. Between then and now, cement has logged a price increase of approximately 26.5 per cent, according to Colliers.

Rising pet coke, coal and fuel costs as well as freight rates have all contributed to an increase in cement prices, says Indranil Basu, Managing Director, Project Management, South India at Colliers. He sees this trend continuing with an inevitable impact on product pricing in almost all real-estate asset classes.

Inflationary impact

So, how are developers responding?

“For ongoing projects, almost all developers have little choice but to absorb the price, which is shrinking margins,” remarks Basu. “However, for new and for upcoming projects, higher raw material prices are pushing up project costs and hence product costs, leaving developers with no choice but to pass on the increase to consumers.”

Cement price increases over the previous few months have increased the overall project cost by at least 3-5 per cent, shares Harshvardhan Tibrewala, Director, Roha Realty. He believes most developers have been absorbing this increase in project costs internally. “As of now, we are not passing any of this increase to buyers,” he affirms.

Contractors haven’t been left untouched by the price rise either.

“Most of our construction contracts include escalation and de-escalation clauses for key raw materials like cement and steel,” says Saurabh Jangle, Executive Director, SJ Contracts. “So, in that sense, we haven’t been directly impacted by recent cement price hikes but sudden hefty price increases (like 20 per cent increase in a couple of months) have caused delays in rate approvals by developers. The losses we incur on account of the idling of machines and labour in such instances aren’t covered by any contract.”

Cement prices will negatively impact the fast-recovering Indian real-estate market in the long run, observes Tibrewala.

Bulk ordering

What can developers do to mitigate the price rise?

“If developers have a defined project timeline, advance bulk orders can save at least 2-4 per cent of the project costs,” notes Tibrewala. However, bulk orders can be damaging in a very volatile market as the cement space has seen in the first six months of this year, he cautions. “Also, construction usually slows during the monsoon, so developers would not order in bulk in advance during that season.”

While Basu agrees that advance bulk orders are indeed a welcome approach to obtain better prices through economies of volume, in the current climate, such price benefits are not being fully realised owing to the hefty increase in raw material prices, especially fuel price hikes (diesel prices have increased close to 34 per cent in the past few months).

Inhouse readymix

Operating one’s own ready-mix concrete (RMC) plant is another way to cut costs.

“It is always cheaper and more efficient to avoid outsourcing,” says Tibrewala. However, the project size must justify the operations of an RMC plant.

“We opt for an in-house RMC plant if the project size is a few million square feet,” he continues. “For smaller projects, we have to rely on external RMC plants. We collaborate with prominent brands like Ambuja, ACC and Godrej that deliver good quality cement and RMC, depending on our current projects. Then, transportation delays, especially during the monsoon season, become the biggest challenge. Also, we have to ensure that the mix does not blend with rainwater and become too free-flowing. Necessary quality controls at the factory level help ensure the quality of the RMC.”

“We operate our own RMC plants in the outskirts of Pune, where we are active, and on the construction site if space permits, such as in township projects, says Jangle. “We outsource our remaining RMC demand, about 10 per cent, to reputed providers such as Godrej after conducting due diligence. Our staff visits the provider’s premises to ensure that they take due precautions with the raw materials they use and conduct essential quality checks. Cube tests help check the concrete at the time of pouring.”

Ready-mix availability

While Tibrewala observes that the RMC industry in India is increasing at 15-20 per cent annually, he notes that the industry is still in its infancy and has a wide gap between the organised and unorganised sectors. Of late, periodic fluctuations in cement prices and higher transportation costs owing to fuel price hikes have impacted the price realisation of RMC.

Whereas Basu sees no gaps in the availability of RMC in India, local issues like the control on supply of aggregates and sand from quarries impact supply from time to time.

Blend ratios

Structural designers are now amenable to prescribe ground granulated blast-furnace slag (GGBS) as a partial replacement of cement in concrete up to 20-30 per cent depending on the grade of concrete, notes Basu. Blended GGBS acts as a stabilising agent as well as improves the quality of concrete. Additionally, the quality of RMC can be enhanced by choosing appropriate fine aggregates, better use of construction water and, overall, finding the right cement for batched concrete from RMC suppliers.”

Roha Realty does not have a preferred kind of cement/RMC, shares Tibrewala, noting that every project requires a different mix.

“We use ordinary Portland cement (OPC) instead of Portland pozzolana cement (PPC) as we achieve higher cement replacement with our OPC-GGBS mixes than we would have achieved by using PPC directly,” says Jangle. “PPC by itself has only 15-25 per cent pozzolanic content, whereas we achieve 40-50 per cent cement replacement with our GGBS-OPC mix, which helps conserve more precious limestone and reduce more carbon dioxide emissions. Our contracts stipulate the extent to which we can replace cement and what sort of replacement we can do. We’re only using GGBS to replace cement in concrete because of the uncertainty surrounding the supply of fly ash and its quality.”

Greening cement

Cement and steel contribute to around 15 per cent of the global carbon footprint.

Considering that every tonne of cement produced releases one tonne of carbon dioxide (CO2) in the environment, the Indian cement industry contributes to the release of 300 million tonne of CO2 into the atmosphere per year (compared to 4.4 billion tonne globally).This has put pressure on cement companies globally to cut the carbon content in the cement they make.

How are they achieving this?

“Cement companies in India are reducing the carbon content in cement by using more efficient kilns and alternative fuels, heat recovery techniques and reducing the clinker content in their finished product,” responds Dr Ravindra Gettu, VS Raju Chair Professor, Department of Civil Engineering, Indian Institute of Technology (IIT) – Madras. “Clinkering is what emits a lot of carbon dioxide.”

Consequently, replacing the clinker content of cement with supplementary cementitious materials like fly ash and ground granulated blast-furnace slag (GGBS) can help reduce theassociated carbon emissions.

“Ordinary Portland cement (OPC) has 95 per cent clinker, Portland pozzolana cement (PPC) has 65 per cent clinker and Portland slag cement (PSC) has only 50 per cent clinker,” continues Dr Gettu.
The irony is that demand for PPC is very low compared to the demand for OPC, opines Raghunandan V Kadaba, Vice President, Technical and R & D, The Bawri Group. “PPC is believed to gain strength slower than OPC and this hampers the speedy execution of projects. Cement buyers are advised to ask about the time taken for the PPC to set to gain from its use.”

A second irony is that the GGBS used to make greener cement that yields more durable concrete comes from the steel industry, continues Kadaba. “Steel is a more polluting industry than the cement industry; it releases more CO2 into the atmosphere. It takes 3-4 mt of iron/steel to produce 1 mt of slag waste.”

Clearly, new developments in cement and construction materials are the need of the hour. “Greening cement is extremely important to India because the country continues to require a lot of cement and concrete for its housing and infrastructure needs and this demand will keep growing for many decades,” explains Dr Gettu. “Even now, India produces little OPC.”

“We have piloted a new cement called LC3 (limestone calcined clay cement) with 50 per cent clinker,” he continues. “LC3 cement has shown itself to be very good for general construction and especially durable in coastal cities, like Mumbai and Chennai. Some companies in India have announced the production of LC3 cement. Of course, users will have to be made to understand how to apply new cements in construction efficiently as low carbon cements for concrete would impact curing needs, workability, etc.”

Another greener construction solution is geo-polymer concrete, which completely eliminates the use of cement. But it is tough to commercialise, owing to operational issues, maintaining the polymers and issues of limitation of strength, adds Kadaba. Instead, he recommends a back-to-the-basics method whereby cement (and steel) companies are mandated by the Government to afforest large areas and maintain them, commensurate with the cement they produce.

[ad_2]

Source link