The installed cement capacity in the country has crossed the 300 million tonnes mark with the industry adding 19.6 million tonnes in 2011. The industry added 35.6 million tonnes (mt) in 2010.
The new capacity has come up despite supply outstripping demand from the infrastructure and realty sectors.
Though the year started off with strong demand, it moderated with fresh capacity going on stream, especially in the Southern region which saw the maximum addition.
Cement sales in the June and September quarters were hit due to extended monsoon. Besides depressed demand, the sharp rise in raw material prices and logistic costs have hit the profit margins of cement companies.
PRICE HIKES
Companies raised prices during the second half of this year by reducing output. In the last two months, prices on an average were up by Rs 40-60 a bag.
For instance, in November prices were raised by Rs 15-20 a bag, while the production was cut five per cent to 13.98 mt (14.79 mt).Mr Ajay D'Souza, Head, Crisil Research, said prices in November were increased by about three per cent to Rs 289 per bag when compared to October and by almost 17 per cent year-on-year. Cement demand will continue to gain traction in next few months, but the tempo of price hike may slow down in December, he said.
COST PUSH
The Railways, which not only transports cement but also raw materials such as coal, limestone and fly ash, hiked freight charges by six per cent this year.
Coal prices have gone up about 30 per cent compared to last year.
The availability of coal has remained the contentious issue for the industry as Coal India, one of the largest domestic suppliers, prioritised supply to the power sector as per the Government direction.
“Coal availability in the e-auction conducted by Coal India has shrunk during the better half of this year leading to sharp spike in prices. Imports have also turned costlier after the rupee depreciation,” said a cement company official.
With no respite from high raw material prices, cement companies are expected to increase prices in coming months as demand picks up from infrastructure development.
Cement demand is expected to grow at a 6.5 per cent compounded annual growth rate next fiscal.
UTILISATION DIP
New capacity addition and fall in demand has led to cement companies operating their plants at an average utilisation level of 70-75 per cent.
The cement industry posted moderate sales growth of 3.1 per cent between April and September against an increase of 4.5 per cent logged in the comparative period last year.
The fall in demand was largely attributed to the southern region where political instability in Andhra Pradesh and minimal pick-up in demand in Tamil Nadu and Kerala post Assembly elections.
Mr V. Srinivasan, Research Analyst, Angel Broking, said the central region will report the highest capacity utilisation of 87 per cent next fiscal, followed by the north at 83 per cent.
The utilisation level will be 80 and 79 per cent at the eastern and western regions, he said.
The southern region may continue to lag with capacity utilisation of 64 per cent due to minimal growth in demand and addition of 13.5 mtpa capacity next fiscal, Mr Srinivasan said.
suresh@thehindu.co.in