The Cost Structure of a Cement Plant

Power and fuel, freight and raw materials make up most of a cement company's costs, so coal and petcoke prices strongly move its profit.

To see why cement profits swing, look at what it costs to make and deliver a tonne.

Power and fuel

Kilns burn coal or petroleum coke, and grinding uses a lot of electricity. This is usually the largest single cost, so a jump in fuel prices hurts margins quickly.

Freight

Moving raw material in and cement out is another big cost, which is why plants near both limestone and customers do best.

Raw materials and packing

Limestone, gypsum, fly ash and bags add further costs, though usually smaller than energy and freight.

Operating leverage

Because fixed costs are high, when plants run at high utilisation the profit per tonne rises sharply; when demand is weak, profits can fall fast.

A fuel price spike

If petcoke prices rise sharply, a cement company either absorbs the cost or tries to raise its price per bag.

Believing profit only depends on selling price

Cost of fuel and freight matter just as much.

Key takeaways

Fuel and power are the largest costs.
Freight is the next big cost.
High fixed costs give operating leverage.
Utilisation of capacity drives profit.