Notwithstanding the excess capacity built-up, the cement industry is expected to add 30-40 million tonnes of capacity in 2013. The industry has a capacity of 324 million tonnes per annum (mtpa) and operates at 75-80 per cent utilisation, due to weak cement demand from realty and infrastructure sectors.
The capacity addition next year will be more than expected as some of the projects that were slated for completion in 2012 got delayed and will now go on stream in 2013, said Shailendra Choksi, Director, JK Lakshmi Cement.
“The prospects of cement companies will depend on the revival in demand. The southern and central region will witness much of the capacity addition,” he said.
Some of the major projects that will be completed during the year include ABG Shipyard’s 3.3 mtpa at Kutch in Gujarat and Century Textiles’ 2.5 mtpa at Chandrapur in Maharashtra. In Karnataka, Sagar Cement and Chettinad Cement will add 3 mtpa and 2.5 mtpa at Gulbarga, and UltraTech Cement will come up with 4.4 mtpa at Malkhed.
Slowdown impact
Cement demand was hit by the general slowdown in the economy. The Index of Industrial Production dipped to 0.4 per cent in September from 2.5 per cent in the same period last year, rattling the industry confidence.
It bounced back the following month largely due to lower base effect. The Finance Ministry has lowered its GDP growth expectation to 5.7 to 5.9 per cent this fiscal, compared to 7.6 per cent estimated earlier in the Economic Survey.
However, the slew of economic reforms announced by the Government and expectation of RBI lowering interest rates in January, will boost sentiments and kickstart the sagging economy. After an impressive September quarter, cement companies are staring at a muted growth in the December quarter. Despite dropping prices, the demand in few regions was quite dismal. The high interest and slowdown in economic activities had dampened the demand in last two months.
Green shoots
The industry expects cement demand to revive in the March quarter, as infrastructure companies rush to complete their projects before the financial year ends. In the western region, the clear mandate for Narendra Modi as Chief Minister of Gujarat, will help him rollout infrastructure and housing projects.
“We maintain our view that the cement industry has gradually started to gear up for the cyclical upturn based on improving fundamentals such as narrowing demand-supply gap, improving capacity utilisation and moderation in cost inflation,” said Amit Srivastava, Research Analyst, Nirmal Bang.
The stable raw material prices such as coal and limestone will also improve the profit margins of cement makers.
The consolidation of cement industry in recent past will help them sustain prices in the long run.
In the recent cyclical downturn, consolidation increased and the top two players contributed 40 per cent to total production, leading to a higher level of stability to cement prices, he said.
The going for top 11 cement makers may get tough, if the appeal they made against the Competition Commission of India penalty of Rs 6,300 crore is turned down. The industry body — Cement Manufacturers Association — has also appealed to the Competition Appellate Tribunal against Rs 73 lakh fine levied on it in the recent price cartelisation case. None of the companies made provision for the penalty as they feel they have a strong case.
suresh.iyengar@thehindu.co.in