Cement Companies Cost Sheet Final: Complete Guide

The cost sheet of the cement companies is the financial anatomy of the industry: the table that splits the price of a tonne of cement into its components (the raw materials, the power, the fuel, the freight, the salaries, the stores and the overheads), compares the cost structures of the producers, and shows the management exactly where the money goes and where the money can be saved. The workbook of this article is a real cost comparison tool: its sheet carries the sales turnover data of the three largest Indian cement producers (Ambuja Cements, UltraTech and ACC) for the financial years 2009 and 2008, and the analyst who opens the file reads the comparative cost picture of the industry at a glance: Ambuja at 7,089.89 and 6,396.2, UltraTech at 7,160.42 and 6,285.8, and ACC at 8,259.77 and 7,848.32 (crores of rupees, the unit of the Indian financial reporting).

This article builds the complete methodology of the cement company cost sheet: the structure of the cost sheet, the variable and the fixed components, the cost per tonne calculation, the comparative analysis of the companies, the cost reduction levers of the industry and the worked example with the real numbers of the file. The Complete Cement Technical Package (931 files: the handbooks, the courses, the Excel tools and the financial spreadsheets, $249.99 one-time, instant download through the secure PayPal payment) delivers the cost sheet workbook together with the full library of the cement industry tools.

1. The Purpose of the Cement Company Cost Sheet

The cost sheet of a cement company answers the three questions that every stakeholder of the industry asks: what does a tonne of cement cost to produce, how does that cost compare with the competitors, and where can the cost be reduced. The answers shape the strategy of the company, the investment decisions of the shareholders and the pricing policy of the market:

• The cost of production per tonne: the total manufacturing cost divided by the production: the number that the management watches monthly, because the cement market price is set by the market and the margin is the difference that the cost controls;
• The cost structure: the split of the total into the components: the raw materials, the fuel, the power, the freight, the salaries, the stores and spares, the overheads: the share of each component tells the analyst which lever of the cost reduction matters;
• The comparison across the companies: the cost sheets of the producers side by side reveal the competitive positions: the plant with the captive limestone, the cheaper power or the shorter freight distances earns the structural advantage that the others must match through the operations;
• The trend over the years: the cost sheet of the year against the previous years shows the direction of the unit cost: the inflation of the fuel and the power, the efficiency gains of the process, the effect of the capacity additions: the trend is the financial mirror of the operational performance;
• The decision support: the capacity expansions, the energy projects, the logistics changes and the pricing decisions all start from the numbers of the cost sheet: the same numbers in the boardroom that the balance sheets show in the field.

The cost sheet is therefore the management instrument of the industry: the manufacturing language of the tonne, the rupee, the kilocalorie and the kilowatt-hour all translated into the single financial page that the companies compare.

2. The Structure of the Cost Sheet

The standard cost sheet of the cement industry organizes the cost of production into the cost centers of the process, and the workbook of the package follows the standard structure:

• The raw materials cost: the limestone, the clay, the iron ore, the gypsum, the fly ash and the other additives: the limestone is the dominant material but its cost in the quarried mines is low, while the purchased materials (the gypsum, the fly ash, the additives) carry the higher unit costs;
• The fuel cost: the coal, the petcoke and the alternative fuels of the kiln: the fuel is the largest single cost component of the process, the 25–35 percent of the total manufacturing cost, and its price volatility dominates the cost sheet of every company;
• The power cost: the grid electricity and the captive power of the plant: the grinding operations (the raw mill and the cement mill) are the power-intensive stages, and the modern plants balance the grid power against the captive power from the coal and the waste heat recovery;
• The freight and the logistics cost: the transport of the raw materials to the plant and the cement to the market: the freight is the second structural cost of the Indian industry (the plants sit near the limestone deposits, the markets sit elsewhere), and the companies with the rail and the sea terminals carry the advantage;
• The salaries and the wages: the labor cost of the plant and the administration: the modern automated plants employ fewer than 100 people per million tonne of capacity, but the legacy plants carry the higher labor loads;
• The stores and the spares: the refractory, the grinding media, the spare parts and the maintenance materials: the 3–6 percent of the total cost, the buffer of the maintenance policy;
• The overheads: the administration, the insurance, the interest and the depreciation: the fixed burden that the production volume spreads.

The structure of the sheet shows the cost of the industry in the manufacturing order: the material enters the process at the quarry, the fuel and the power convert it, the freight delivers it, and the overheads complete the total: the full journey of the tonne in the financial rows.

3. The Variable and the Fixed Components

The cost sheet splits into the variable costs (the costs that move with the production volume) and the fixed costs (the costs that stay constant), and the split is the key to the break-even analysis of the industry:

• The variable costs: the raw materials, the fuel, the power, the freight and the stores: the costs that scale with the tonnes produced: in the cement industry the variable costs dominate with the 75–85 percent of the total manufacturing cost;
• The fixed costs: the salaries (the core staff), the interest, the depreciation, the insurance and the administrative overheads: the costs that the plant carries even at the zero production: the 15–25 percent of the total;
• The break-even point: the production volume at which the revenue equals the total cost: the fixed costs divided by the contribution per tonne (the price minus the variable cost per tonne): the company below the break-even loses money at every tonne, the company above it earns the contribution;
• The operating leverage: the ratio of the fixed costs to the total costs: the capital-intensive cement industry carries the high depreciation and the interest, so the leverage amplifies both the profits and the losses with the volume swings;
• The capacity utilization effect: the fixed costs per tonne fall as the utilization rises: the plant at 90 percent utilization spreads its fixed costs over 90 percent of its capacity, and the same plant at 60 percent carries the same fixed burden over the smaller volume: the cost per tonne moves by the 5–10 percent between the utilization levels.

The variable-fixed analysis of the sheet explains the behavior of the industry: the cement companies chase the capacity utilization aggressively because every percentage point of the utilization drops the unit cost, and the cost sheets of the companies at the different utilization levels tell the story of the competitive positions.

4. The Sales Turnover Data of the Workbook: The Three Companies

The workbook of the package carries the comparative data of the three Indian producers: Ambuja Cements, UltraTech and ACC, with the sales turnover of the financial years 2009 and 2008. The data of the file, in the crores of rupees:

Company	Sales Turnover 2009 (Rs. crore)	Sales Turnover 2008 (Rs. crore)	Change (%)
Ambuja Cements	7,089.89	6,396.20	+10.8
UltraTech	7,160.42	6,285.80	+13.9
ACC	8,259.77	7,848.32	+5.2

The table of the workbook tells the first story of the Indian industry in 2009: the three companies grew their turnovers despite the global financial crisis, ACC was the largest by the turnover (the 8,259.77 crore), UltraTech grew the fastest (the 13.9 percent), and Ambuja was the most stable in the mid-range: the comparative view that the cost analyst needs before the deeper ratios.

• The turnover as the scale indicator: the sales turnover reflects the volume sold and the average realization: the companies of the table operate in the 20–30 million tonne scale of the Indian market, and the turnover gap between ACC and Ambuja (the 1,170 crore in 2009) reflects the volume and the product mix differences;
• The growth comparison: the turnover growth of the three companies (the 10.8, 13.9 and 5.2 percent) tracks the capacity additions and the market shares of the period: the fastest grower builds the capacity, the slowest defends the margin;
• The basis for the cost ratios: the turnover is the denominator of the key ratios of the analysis: the cost of the production to the sales, the EBITDA margin, the net margin: the workbook places the turnovers side by side so the analyst extends the sheet with the ratio rows.

The turnover data of the file are the starting point of the cost comparison, and the analyst who opens the workbook extends the sheet with the cost rows, the production volumes and the derived per-tonne numbers: the cost sheet grows from the skeleton of the file.

5. The Cost Per Tonne: The Building Blocks and the Worked Numbers

The heart of the cost analysis is the cost per tonne of cement, and the worked example below builds the number from the standard structure of the Indian industry in the 2009 period, the numbers that the analyst compares with the actual cost sheets of the companies:

• The raw materials: the limestone, the clay, the iron ore, the gypsum and the fly ash at the total of about 480–560 rupees per tonne of cement: the limestone from the captive mines at the low cost, the purchased gypsum and the additives at the market prices;
• The power: the 85–95 kWh per tonne of cement at the grid and the captive rates of the period at about 4.5–5.5 rupees per kWh: the 450–520 rupees per tonne;
• The fuel: the 85–95 kg of the coal equivalent per tonne at the prices of the period (the coal at 2,500–3,500 rupees per tonne): the 350–450 rupees per tonne: the largest single line of the sheet;
• The freight: the 400–600 rupees per tonne depending on the distance to the market and the mode (the road, the rail, the sea): the structural cost of the Indian industry;
• The salaries: the 80–120 rupees per tonne for the modern plants and up to the 250 for the legacy plants;
• The stores, the spares and the overheads: the 150–250 rupees per tonne;
• The total manufacturing cost: the sum of the components in the 1,900–2,300 rupees per tonne of the period, with the freight and the delivery adding the further 400–600: the total landed cost in the 2,300–2,900 rupees per tonne against the market price of the 2,800–3,400 rupees: the thin margins of the industry that the crisis year compressed.

The per-tonne numbers translate the cost sheet of the companies into the language of the operations: the engineer sees the kilocalories and the kilowatt-hours behind the rupees, and the management sees the rupees behind the engineering: the two views meet in the cost per tonne.

6. The Comparison of the Cost Structures: The Benchmarks

The comparative cost analysis of the companies uses the benchmarks of the industry, and the workbook’s structure supports the comparison of the three producers:

• The energy cost share: the fuel and the power together take the 45–55 percent of the manufacturing cost: the company with the older kilns and the poorer power mix carries the higher share, and the gap between the best and the worst of the industry reaches the 15–20 percent of the total cost: the cost sheet ranks the companies by the energy efficiency;
• The freight cost share: the 15–25 percent of the delivered cost: the plants with the rail sidings, the sea terminals and the grinding stations at the markets carry the advantage: the logistics strategy of the company shows in its cost sheet;
• The material cost share: the 20–25 percent: the captive limestone versus the purchased limestone, the fly ash and the slag purchases, the clinker purchases of the grinding-only players: the vertical integration shows in the numbers;
• The overhead share: the 10–15 percent: the companies with the corporate structures and the market organizations carry the heavier overheads, and the disciplined players keep the share low;
• The comparative ratios: the cost of the production to the sales, the operating margin and the net margin: the profitability comparison that the analyst extends from the turnover data of the workbook: the sheet of the package provides the skeleton, the analyst adds the ratios and the industry benchmarks.

The comparative analysis is the competitive map of the industry: the position of each company on the cost map decides its freedom in the pricing wars, and the workbook of the package gives the analyst the framework of the comparison.

7. The Cost Reduction Levers of the Cement Industry

The cost sheet is the action list of the industry, and the experienced management attacks the largest lines of the sheet in the order of the impact:

• The thermal energy lever: the specific heat consumption of the kiln from the 800–900 kcal/kg of the older lines to the 700–760 of the modern precalciner lines: the improvement of the 10–15 percent in the fuel line: the projects of the heat balance optimization, the waste heat recovery and the alternative fuels;
• The power lever: the specific power consumption from the 95–110 kWh per tonne to the 75–85: the mill optimization, the separators, the variable speed drives and the waste heat recovery power (the 6–10 MW per 5,000 t/d line): the power line of the sheet falls by the 10–20 percent;
• The fuel mix lever: the substitution of the expensive coal with the petcoke and the alternative fuels: the petcoke at the 20–30 percent lower cost per kilocalorie and the alternative fuels at the 30–50 percent lower: the fuel line of the sheet moves by the 5–15 percent in the mature substitution markets;
• The logistics lever: the rail and the sea freight against the road, the grinding stations at the markets, the optimized clinker haulage: the freight line falls by the 10–20 percent in the best programs;
• The utilization lever: the fixed costs per tonne fall with the capacity utilization: the demand-side and the production-side measures that lift the utilization from the 60–70 percent to the 85–95 percent cut the fixed burden per tonne by the 10–20 percent;
• The procurement lever: the consolidated purchases of the fuel, the power contracts and the spares: the 2–5 percent of the total cost in the disciplined programs.

The levers of the cost sheet are the engineering projects of the industry: the heat balance, the power optimization and the fuel substitution that the technical library of the package documents, all justified and measured by the cost lines of the sheet.

8. The Worked Example of the Cost Sheet Build-Up

Follow the complete worked example of the cost sheet construction for the hypothetical plant of the 3.0 million tonne capacity at the 85 percent utilization (2.55 million tonnes per year) in the 2009 cost environment of the Indian industry:

• The production: the 2.55 million tonnes of the cement per year, the 7,000 tonnes per day of the clinker at the 90 percent of the clinker utilization;
• The raw materials: the limestone from the captive quarry at the 220 rupees per tonne of the cement, the clay at 60, the iron ore at 40, the gypsum at 90, the fly ash at 70: the total material cost of the 480 rupees per tonne × 2.55 million = the 1,224 million rupees per year;
• The power: the 90 kWh per tonne at the 5.0 rupees per kWh: the 450 rupees per tonne, the 1,148 million rupees per year;
• The fuel: the 90 kg of the coal equivalent per tonne at the 3,200 rupees per tonne: the 288 rupees per tonne, the 734 million rupees per year;
• The freight: the 500 rupees per tonne on the average, the 1,275 million rupees per year;
• The salaries, the stores and the overheads: the 400 rupees per tonne, the 1,020 million rupees per year;
• The total: the manufacturing cost of the 2,118 rupees per tonne, the total of the 5,401 million rupees per year, against the average realization of the 2,900 rupees per tonne (the 7,395 million rupees of the revenue): the EBITDA of the 782 rupees per tonne and the net margin of the 8–10 percent: the numbers that the company reports and the workbook’s structure compares.

The worked example demonstrates the full method of the cost sheet: from the production volume through the cost lines to the margins, the analyst builds the sheet in the rows of the workbook and reads the profitability of the operation in the summary cells.

9. The Ratios of the Cost Analysis

The cost sheet of the companies extends into the ratio analysis, and the analyst derives the standard ratios from the turnover data of the workbook:

• The cost to sales ratio: the total cost divided by the sales turnover: the 78–90 percent of the industry: the lower the ratio the wider the margin: the three companies of the workbook in the crisis year of 2009 operated at the ratios near the 85 percent, and the analyst tracks the quarterly movement of the ratio;
• The operating margin (EBITDA): the sales minus the operating costs over the sales: the 15–25 percent of the healthy industry, compressed to the 10–15 percent in the cost inflation years: the primary comparator of the companies;
• The net margin: the profit after the interest, the depreciation and the taxes over the sales: the 6–12 percent of the industry: the final measure of the profitability;
• The asset turnover: the sales over the assets: the capital-intensive industry operates at the 0.6–1.0, and the company with the newer and the more utilized assets wins the comparison;
• The working capital ratios: the inventory days of the coal and the clinker, the receivable days of the market: the cash flow of the companies: the sheet of the package extends into the working capital analysis with the same row discipline.

The ratios turn the cost sheet into the performance report: the analyst compares the three companies of the workbook across the ratios and the years, and the comparative table of the file becomes the quarterly dashboard of the industry.

10. The Cost Data of the Other Markets: The International View

The cost structure of the cement production varies across the world with the energy prices, the labor costs and the logistics, and the cost sheet methodology of the workbook serves the international comparison:

• The energy-intensive markets: the plants of the Europe and the Asia at the grid prices of the 100–200 USD per MWh carry the power share of the cost at the 15–25 percent, while the plants with the captive coal power at the 30–60 USD per MWh keep the share below the 10 percent;
• The fuel markets: the coal at the 80–120 USD per tonne in the international market, the petcoke at the discount, the alternative fuels at the negative cost in the mature European markets (the gate fees of the waste reception): the fuel line of the sheet differs by the factor of two between the regions;
• The labor markets: the 5–15 percent of the cost in the developed markets against the 3–8 percent in the developing: the automation of the modern plants narrows the gap;
• The freight markets: the coastal plants with the sea freight at the 10–20 USD per tonne against the inland road freight at the 30–60: the global trade of the cement and the clinker follows the freight lines of the cost sheets;
• The global benchmark: the production cost of the cement in the 30–60 USD per tonne in the competitive markets, with the delivered cost to the urban markets adding the 20–50 percent: the cost sheet of any company positions the plant against the global benchmark line.

The international view of the cost sheet explains the trade flows of the cement industry: the clinker and the cement move from the low-cost producers to the high-cost markets along the cost differences that the sheets quantify, and the analyst of the global industry reads the movements in the cost lines.

11. The Cost Sheet in the Annual Reports: The Reconciliation

The cost data of the workbook’s companies are assembled from the public disclosures, and the reconciliation of the assembled cost sheet against the annual reports is the analyst’s verification discipline:

• The disclosure basis: the annual reports of the listed cement companies disclose the revenue, the cost of the materials, the power and the fuel costs, the employee costs, the depreciation, the other expenses and the finance costs: the analyst maps the disclosures into the cost sheet structure of the workbook: the mapping of the package’s format follows the disclosure lines;
• The volume data: the production and the sales volumes of the company (the million tonnes) disclosed in the reports and the capacity statements: the volumes convert the total cost lines into the cost per tonne: the reconciliation check: the cost per tonne derived from the disclosures multiplied by the volume must equal the disclosed total: the internal consistency of the sheet;
• The reconciliation example: the ACC data of the workbook: the turnover of the 8,259.77 crore (2009) with the sales of the about 20 million tonnes gives the average realization of the 4,130 rupees per tonne, and the operating costs of the company’s disclosures give the EBITDA per tonne that reconciles with the reported operating profit: the analyst verifies each line against the report, and the deviations trigger the re-check of the mapping;
• The non-operating items: the interest, the exceptional items, the tax and the minority interests separate the operating cost sheet from the net profit: the reconciliation of the net profit: the operating profit minus the finance costs minus the tax plus the exceptional items equals the reported profit after the taxation: the closing check of the analysis;
• The audit trail: the assembled cost sheet with the source references (the report page, the line, the note number) is the audit trail of the analysis: the workbook’s reference columns document the trail: the analyst who returns to the numbers months later (or the auditor who reviews them) reconstructs the derivation from the trail: the discipline of the professional cost analysis.

The reconciliation chapter makes the cost sheet of the workbook a defensible document: the numbers of the file trace back to the disclosed reports, the per-tonne conversions check against the totals, and the derived margins reconcile with the reported profits: the cost data analysis of the professional standard, built on the skeleton of the package’s workbook.

12. Frequently Asked Questions

What is the largest cost component of the cement production?

In the manufacturing cost structure, the fuel and the power together are the largest block with the 45–55 percent of the total, and the fuel alone (the coal, the petcoke, the alternative fuels) is usually the single largest line at the 25–35 percent. In the delivered cost, the freight joins the energy block and takes the further 15–25 percent, so the three blocks (the energy, the freight and the materials) control the profitability of the company.

Why do the cost sheets of the cement companies differ so much?

The cost differences come from the four structural factors: the vintage of the plants (the modern precalciner lines versus the old wet and long dry lines), the energy prices of the region and the captive power position, the distance from the limestone to the plant and from the plant to the market, and the capacity utilization. The company with the new plant, the captive power, the quarry at the plant gate and the 90 percent utilization carries the cost per tonne of the 15–25 percent below the company with the old plant and the poor logistics.

How is the cost per tonne calculated from the company reports?

The cost per tonne is derived by dividing the cost of the production (the raw materials, the power, the fuel, the salaries, the stores and the overheads) by the production volume of the period. The public reports give the total costs and the production volumes, and the analyst reconstructs the per-tonne numbers with the production data of the companies and the capacity statements: the cost sheet workbook of the package provides the structure of the reconstruction.

What is the break-even utilization of a cement plant?

The break-even utilization depends on the fixed cost share and the market price, and the typical values of the industry sit in the 55–70 percent band: the plant covers its total costs when the volume reaches the 55–70 percent of the capacity, and every percentage point above the break-even contributes the full contribution margin to the profit. The utilization level is therefore the most watched operational number of the industry.

How does the cost sheet drive the energy projects of the plant?

The cost sheet quantifies the energy lines (the fuel and the power at the 45–55 percent of the manufacturing cost), and the engineering projects attack the lines: the heat balance optimization reduces the fuel line, the mill optimization and the WHR power reduce the power line, and the alternative fuels reduce both. The before and after cost sheets of the project measure the saving in the rupees per tonne, the language of the boardroom: the technical and the financial views of the same improvement.

Is the original cost sheet workbook included in the package?

Yes: the Complete Cement Technical Package (931 files) includes the original cost sheet workbook with the comparative data of Ambuja, UltraTech and ACC, the structure that the analyst extends with the own data, and the full library of the industry tools and the references: the purchase below delivers the file and the complete collection.

13. Conclusion

The cost sheet of the cement companies is the financial anatomy of the industry: the raw materials, the power, the fuel, the freight, the salaries and the overheads split the price of the tonne into the accountable lines, the companies compare their structures, and the management attacks the largest lines with the engineering projects. The workbook of the package carries the real comparative data of Ambuja, UltraTech and ACC (the turnovers of the 2009 and 2008 years), and the article built the complete methodology: the structure, the per-tonne build-up with the worked numbers of the 2,118 rupees per tonne example, the benchmarks, the levers and the ratios.

The cost sheet and the full family of the financial and the technical tools of the cement industry are part of the Complete Cement Technical Package: the 931 files, the one-time payment of $249.99, the instant download and the lifetime access. The purchase button below delivers the cost sheet workbook, the analysis structure and the complete library of the cement engineer and the cement analyst in one package.

This file is part of the Complete Cement Technical Package (931 files) available from cementequipment.org. Respective rights holders; library copy for the licensed single user.