1. INTRODUCTION:

A sedimentary rock, gypsum is normally found in thick beds or layers of six to eight feet in thickness. Being a non-metallic mineral, it is found in rock form. By weight, it is composed of 79.1% calcium sulphate and 20.9% water and is often inter-layered with limestone or shale.

The wide uses of Gypsum include manufacture of wallboard, cement, plaster of Paris, soil conditioning, hardening retarder in Portland cement and fertilizers. Gypsum has many other uses. Gypsum is an essential ingredient in the production of cement, due to its ability to control the hardening rate of the end product. It accounts for around 5 per cent of the raw material mix that goes into cement production.

The gypsum reserves in Oman are largely untapped. Commercial mining of gypsum started only as late as 2006. Production and export of raw gypsum has seen an exponential growth with more firms taking a plunge into gypsum mining. Demand from the Indian Sub-Continent and South East Asia has only propelled this drive for increasing production. In terms of production of raw gypsum, Oman was ranked 7th in the world in 2015.

In Oman, the major gypsum resources are largely found in southern region of the Sultanate, notably in Thumrait, Sadah, Thakabayat and Shuwaymiyah, as well as in Ghaba in the central region of the country. Most gypsum mines are located in Thumrait area, which is 80 kms from the port city of Salalah. As is seen in figure 1, the number of companies operating in this area has grown over the years :

Figure 1 : Number of Gypsum Mining Companies in Oman from 2006 to 2016

Source: Public Authority for Mining, Oman.

In the Middle East, Iran and Oman are seen as potential export markets for gypsum. Iran has a thriving cement/gypsum industry, and till 2014limited exports to 10 per cent of overall production. However, gypsum exports from Iran have since opened up. Imports to India from Thailand are expensive. Moreover, Thailand is expected to curtail exports in order to supply its rapidly expanding domestic market. High FOB costs and shipping freights rule out imports from Mexico and Turkey.In these circumstances, the Sultanate of Oman, with its huge gypsum resources, emerges as a strong and viable source to supply the Indian and South East Asian Markets. Production ofgypsum in Oman have been growing year-on-year, rising from 1.92 million tons in 2012 to 3.39 million in 2014 to 6.24 million tons in 2016 . Production is expected to touch 10 million tons by 2018.

Figure 2 : Gypsum Production in Oman from 2010 to 2016

Source : Public Authority for Mining, Oman

India is a major customer for Omani gypsum. Due to the thrust on infrastructure and housing, the Indian Cement industry has been growing at a rate of 8-10 % per annum. During the year ended 31.3.2017, India produced 279.8 million tons of cement. India has cement production capacity of around 420 million tons per annum (mtpa) as at 30.6.2017 and this isprojected to increase to 550 mtpa by 2025 (Source : Dept of Industrial Policy and Promotion, Govt of India) However, as the gypsum mines, specially in the state of Rajasthan run dry, India is faced with growing shortfall of cement-grade gypsum, which is looming large to drive up production costs.

Figure 3 : Gypsum Production in India

Source : World Mining Data, Volume 31, Vienna - 2017. International Organizing Committee for the World Mining Congress, Federal Ministry of Science, Research and Economy, vienna, Austria.

Gypsum consumption by the Indian cement industry is projected at over 450 million tons of gypsum during the next 15 years. The available supply in India is only around 150 million tons of local natural gypsum. As the resultant shortfall can only be met through imports from overseas markets, Indian producers are increasingly looking at long term overseas contracts for gypsum supply or through acquisition of mines abroad.

2. LITERATURE REVIEW :

The rapid growth in Asia, is having a significant effect on the structure of the global economy. The strong demand for minerals and other commodities has led to a rapid growth in mining industry. The rapid growth in mining receipts has also had an impact on the directly affected industries and regional areas as well as rest of the economy (Connolly & Orsmond, 2011)

The dynamics of the mineral resources industry are unique. The mining industry is subject to uncertainties not applicable to other sectors. Industry economics are difficult to quantify. Over short and long run, mineral commodity prices are prone to volatility – this volatility in turn fluctuates the operating margins for mining companies over a period of time. These fluctuations in turn have a bearing on the mining operating decisions taken by the management, depending on the inter-action of company – specific and mineral market conditions. We may consider the company factors to be the methodology at operating level, mining practices, financial strength of the company and the strategy to deal with the price risk. Price of the ex-mine product is the crucial mineralmarket factor. This largely depends on the factors causing the supply and demand of minerals and the micro and macro causes pertaining to the same.Mineral commodity prices that go up or down and hold on for a prolonged time have a considerable bearing on the mine economics and thereby the practices of mine. A prolonged downward trend of commodity prices may slow down operations and the management may not have the strength to hold on, thereby causing the mine to close down. Accurate forecasting of mineral prices is extremely difficult and has eluded economists as well as market analysts. It is obvious therefore, that any system that is not able to respond to such price volatility in the market is bound to lose out on revenue and margins. Companies tend to be helpless and reduce to just managing the incremental capital and operating expenditure (Trench & Sykes, 2014)

Unlike other resources, metals and minerals pricing has received less attention as it will not directly affect the consumer. However, this will have a direct bearing on the consuming industry, which will eventually be passed on to the consumer (Kooroshy, Preston & Bradley, 2014)

Firms generally are not competent enough to respond quickly to the trend of rising prices and make adjustment to the production. Hence, they fail to reap the full economic opportunity that lies here. Commodity price and currency exchange forecasts are not accurate enough for the miners to predict with confidence periods of higher margin and economic opportunity that might be lurking.

Entrepreneurs respond by arbitraging price differences between regions. As time passes by, information and transportation costs decline, increasing the integration of markets. These forces move the economy rapidly towards the long-run equilibrium. The remarkable feature of this process is that prices behave as economic theory predicts they would (Konieczy & Skrzypacz, 2000)

There are also long-term supply agreements that establish relationships between mining companies and a purchasers of mineral products. Here, the purchaser agrees to buy a specified product from the mining company in specified quantitiesat periodical intervals. This may be the entire production of the mine or a portion. Off take agreements are often signed before the construction of a mine - this agreement itself may assist the mining company to obtain financing for the mine’s construction. Such contracts typically set a pricing mechanism to be used for the duration of the agreement. The pricing formulae mean shipments of the mineral may be made at prices that do not correspond to the spot price. This may be either in the form of a premium or discount to the spot price, which will depend on various factors including the negotiating ability of the parties, demand and supply conditions for the mineral production and the objectives of each side of the agreement.

Commodity price fluctuations are driven by demand rather than supply shocks. Whereas the supply shocks affect the mineral prices upto a maximum of 5 years, demand shocks affect the price persistently for up to fifteen years. Price surges caused by rapid industrialization are a recurrent phenomenon throughout history. Mineral commodity prices tend to stabilize and have a declining trend in the long run (Stuermer, 2014)

If the mining sector consistently fails to generate the much needed government revenue, it will eventually undermine the development opportunity of the country in general. The government should ensure that the trans national companies integrate their activities into the development strategy of the country (Magai & Velazquez, 2011).

Many studies have been conducted on Break Even Analysis and Pricing decision by companies, especially those engaged in mineral extraction. Enyi (2012) states that In the competitive world today, a single line business will not suffice and the old idea of single point BEA has serious limitations. In competing in today's world a business has to decide which of its operational costs are relevant and which are not. Their paper contributed to the Reversed Contribution to Sales Ratio (RCSR) approach which is a big step forward in resolving the single line BEA.

The break-even point for a product is the point where total revenue received equals the total costs associated with the sale of the product. The break-even point suffers from certain limitations as break-even analysis is only a supply side (i.e. costs only) analysis, as it tells us nothing about what sales are actually likely to be for the product at these various prices

The uses of the cost-volume-profit analysis in analyzing and monitoring the performance of mining industry in Romania and making clear cut management decision based on the evaluation (Briciu, et al., 2014).Cost is the main component in any industry. Managers must have access to cost details so that specialists can understand the relationship between cost-volume-profits and make decisions. Cost - volume - profits analysis is dependent on the analysis of the Break Even Point. Cost - Profit-Volume method is used to find the optimal profitable combinations for the variable costs, selling price and sales volume.If fixed costs can be effectively reduced, profits can be increased by reducing the margin of contribution.

In the most simple form, break-even analysis provides insight into whether or not revenue from a product or service has the ability to cover the relevant costs of production of that product or service. Managers can use this information in making a wide range of business decisions, including preparing competitive bids, setting prices, and applying for loans with the financial institution (Sharma, 2014).

Variable Cost =Variable costs are those that increase with the quantity produced. Fixed Cost = Fixed Cost are those that will be incurred by the company even if no units are produced. In a company that produces asingle good or service, this would include all costs necessary to provide the production environment, such as administrative costs,depreciation of equipment, and regulatory fees. However, In a multi-product company, fixed costs are usually allocated to all products.

Marginal Contribution= Profit margin + Fixed Cost

P/V Ratio= Profit Volume Ratio (It indicates the Proportion of Profit + Fixed cost proportion out of selling price (Sharma, 2014)

In the competitive environment , the aim of companies should to achieve BEP quicker than their competitors. This of course demands certain quality improvements to bring down costs. The methods could be by reducing fixed costs by prudent Management, by reducing variable costs by negotiating for cost reduction of raw materials and higher selling price, keeping in view the strategy of competitors(Basavachari, 2015). Efficiency of technology is the presumption of economic success (Deze, et al., 2010).

Companies widely use Break Even Analysis in controlling expenditure, production and evaluating performance. BEP is also used in evaluating between alternatives, Long term and Short Term decisions, Controlling accounts and eliminating manipulation (Alnasser, Shaban & Zubi, 2014).

3. RESEARCH PROBLEM :

The price per ton (on FOB basis ex- Port of Salalah) which was US$ 15 in 2012, was sliding to a point, it came down to US$ 10/ton in 2016.

This paper examines :

a. If the gypsum prices in Oman are influenced by the increased production and competition within Oman, if the increased production in Iran has a bearing on the prices in Oman.

b. The break even point at which gypsum can be exported out of Oman

c. The relevance of the price floor fixed by the Government of Oman and whether the gypsum exporting firms would benefit from this.

4. RESEARCH METHODOLOGY:

We compare the prices of Oman with the production of Oman and see if there is a correlation between the two and whether the increase in local production affect the FOB price. We compare the prices in Oman with the number of companies operating in Oman and examine if the price of gypsum affected by the increased number of companies ie. Increased competition. Prices of Oman from 2010 to 2016 are compared with the production in Iran at the same period. Pearsons's Correlation is used to establish the relationship between any two variables under study. Break even analysis is done to establish a break - even point at which the company will make no profit / loss. For this, we have considered the quantity to be shipped per month to be 60,000 tons. Finally, the floor price of exporting gypsum out of Oman (on FOB basis) is compared with the break even point.

5. ANALYSIS:

1.The relationship between Oman prices of gypsum and production within Oman :

Figure 4 : Production vs Price of Gypsum in Oman

Source :Production - Public Authority for Mining, Oman; Prices - Gypsum Companies

It is seen from fig. 4 that, when the production within Oman has increased, the prices have shown a decreasing trend.

Further, when we apply Pearson's Correlation Coefficient between Oman production and behavior of prices, we observe that the two are negatively correlated at -0.513. Hence, it can be concluded that Increase in production within the country has contributed to the decline in prices.

2. The relationship between the number of companies operating within oman and the price of gypsum :

Figure 5 : Comaprison of number of gypsum mining companies with the price movement of gypsum

Source :

Production : Public Authority for Mining, Oman

Prices : Local Gypsum Mining Companies

It is seen from fig. 5 that when the number of companies engaged in mining of gypsum have increased in Oman, the price of gypsum has come down. There is a very low positive correlation of 0.180 between the two variables. It can be inferred that competition and price cutting have brought down the prices of gypsum in Oman.

3. The relationship between Oman prices of gypsum and the production in Iran :

Figure 6 : Comparison of Oman Gypsum Price with Production in Iran

Source : Production data : World Mining Data, Volume 31, Vienna - 2016. International Organizing Committee for the World Mining Congress, Federal Ministry of Science, Research & Economy, vienna, Austria & Statista.com

Prices : Local Gypsum Mining Companies

It is seen from figure 6 that, when the production in Iran has gone up, the prices in Oman have dropped. This is very significant in 2015, when Iran removed its export embargo on gypsum and the production shot up.

When we apply the Pearson's correlation coefficient, we find that there is a very thin correlation between the prices in Oman and gypsum production in Iran at 0.0464.

3. Break Even Point : Table 1 shows that to produce and export 60,000 tons of raw gypsum from the port of salalah, the total cost works out to US$ 10.32 per ton. In other words, anything above this level will be a profit for the company.

Table 1 : Broad view of the cost per ton (to produce & export 720,000 tons of gypsum per year) :

	US$
Cost of mining	(1.94)
Transportation (Quarry to port)	(3.10)
Re-handling at the port	(1.50)
Port charges	(2.07)
Export cess to government	(0.38)
Reserve for local area development	(0.06)
Total variable costs per ton	(9.05)
Overheads	(0.40)
Interest	(0.07)
Depreciation	(0.70)
Amortization of mining lease	(0.10)
Total fixed costs per ton	(1.27)
Total cost per ton	10.32

Source: Local Gypsum Mining Companies

Assumptions in estimating costs :

A. The company will be able to mine and export 60,000 tons of gypsum per month (one shipment)

B. Port charges vary between US$ 1.80 and US$ 2.60. In this study we have considered US$ 2.10/ ton.

C. Operations will be carried out by own machineries

D. Re-handling at the port will be done with hired machinery

E. The selling price is based on FOB Salalah (as in the case of all others)

F. The cost of mining license (App. RO. 600,000) is amortized over 20 years.

6. LIMITATIONS OF THE STUDY:

1. The study does not taken into consideration the quality of gypsum used.

2. The study also does not consider the alternatives that are available to gypsum and the influence of these on the prices.

3. The region wise demand of importers is not considered in this study. Whether the demand from a particular country is stagnant or increasing / whether the demand has shifted to other countries and the influence the shift may have on prices.

4. The study does not consider the proposed changes in the Omani mining law and the influence it will have on pricing.

5. The break even point may vary from firm to firm and will change as per the efficiency of the company. It is also dependent on Port Charges and other variable costs. The costing in this paper is built after consultation with local gypsum companies.

7. CONCLUSION :

It is seen from the above analysis that the Omani gypsum prices for export of raw gypsum (on FOB basis) are closely related to the production within Oman, the number of mining companies operating (the competition) and the production of gypsum from Iran, which is a regional competitor. It is seen that the price of gypsum in Oman has come down with the increase in the production of gypsum in Oman, with the increase in the number of companies operating in Oman and the increase in the production of gypsum in Iran.

It is seen from the study that the break-even point for export of gypsum out of Salalah port is US$ 10.32/ton. Given the tight pricing scenario, it is too tight a situation to export gypsum out of Oman at the prevailing market rate (as of end 2016) of US$ 9-10/ton.

The fixing of price floor of US$ 12.50/ton is a boost to the local gypsum companies. As it can be seen, the gypsum companies will be in a position to achieve operating profits, if the industry holds on to the price floor.

8. RECOMMENDATIONS :

Cost of exports can be brought down with a host of measures, specially the following :

1. Mechanize the handling of gypsum by conveyors at the Port of Salalah and thereby lower the Port Handling Charges.

2. Subsidize the fuel for transportation from Thumrait to Salalah Port.

3. Re-look at the export cess and the local area development charges.

4. Reduce the port charges at Salalah Port

9. FURTHER RESEARCH :

It is left for further research to establish whether the floor pricing in Oman is sustainable in view of the regional and local competition. It is also left to research to establish more innovative methods of reducing costs in order to make Omani gypsum more competitive in the region.

10. REFERENCES :

1. Alnasser Nabil, Shaban Osama Samih & Al- ZubiZiad, (2014), The Effect of Using Break-Even-Point in Planning, Controlling and Decision Making in the Industrial Jordanian Companies, International Journal of Academic Research in Business and Social Sciences 4(5), 626-636.

2. Basavachari V. (2015), Break Even Analysis-A Planning Device For Enterprises, International Journal of Management and Social Science Research Review, 1(8), 115-118

3. Briciu Sorin, Capusneanu Sorinel, Boca Ileana Sorina & Topor Dan Ioan (2014), Cost Analysis and Reporting the Performances of Companies in the Mining Industry, paper presented on Recent Advances in Applied Economics Business & Development at the 6th International Conference of Applied Economics, , at Lisbon, Portugal Oct 30- Nov.1.

4. ConnollyEllis, OrsmondDavid (2011), The Mining Industry: From Bust to Boom, A research discussion paper presented at the Reserve Bank of Australia Conference on ‘The Australian Economy in the 2000s’ in Kirribilli, Australia

5. De`zeJadranka, Ranogajec Ljubica, Ana Crncan & KristicJelena (2010): Break-Even Analysis (BEA) In Egg Production, Poljoprivreda 16:2010 (2), 47-50

6. Enyi Patrick Enyi(2012) :Removing the Constraining Assumption of No Joint Products in Breakeven Analysis, American International Journal of Contemporary Research 2(5), 204-209

7. KoniecznyJerzy D. and SkrzypaczAndrzej (2000),The Behavior Of Price Dispersion In A Natural Experiment, Research Paper No. 1641, Graduate School of Business, Stanford University.

8. KooroshyJaakko,PrestonFelix,BradleySiân (2014), Cartels and Competition in Minerals Markets: Challenges for Global Governance, Energy, Environment and Resources, Chatam House, The Royal Institute of International Affairs.

9. Magai Petro S and VelázquezAlejandro Márquez (2011), Tanzania’s Mining Sector and Its Implications for the Country’s Development, Working Paper No. 04/2011, Berlin Working Papers on Money, Finance, Trade and Development.

10. Sharma Murari P(2014), Study of Banking Break Even Point: An Innovative Tool for Banking Industry, International Journal of Innovative research and development, 3(11), 164-168

11. Stuermer Martin (2014), 150 Years of Boom and Bust:What Drives Mineral Commodity Prices?, Working Paper 1414, Federal Reserve Bank of Dallas, Research Department.

12. Trench A & Sykes JP (2014), Perspectives on Mineral Commodity Price Cycles and their Relevance to Underground Mining. Paper presented at the Australian Institute of Mining & Metallurgy 12th Underground Operators Conference,Adelaide. Retrieved from https://www.researchgate.net/ publication/275655014.

Received on 28.01.2018 Modified on 11.02.2018

Asian Journal of Management. 2018; 9(2):885-890.

DOI: 10.5958/2321-5763.2018.00140.3