Fresh capacity addition by the cement industry is expected to slow down as demand fails to keep pace with new additions.
The industry’s production capacity increased to 325 million tonnes (mt) last fiscal as compared to 219 mt in FY09, registering a compounded annual growth rate of 10.4 per cent.
Given the huge surplus situation prevailing in the industry, the pace of capacity addition will decelerate going ahead, said a Care Research study.
The industry may add about 66 mt in the next three fiscals, it said.
On account of the huge capacity addition, the industry’s utilisation rate dropped to 73 per cent last fiscal from the peak of 93 per cent in FY’07. Going forward, the capacity utilisation rate may improve gradually given the slowdown in pace of capacity addition and recovery in demand, the report said, adding that the operating rate of the industry is expected to touch 76 per cent in FY16.
HIGH PRICES
The increase in input cost is expected to push up cement prices. However, margins of cement companies are expected to remain under pressure as they will be forced to absorb a part of rise in costs. This may exert pressure on profit margins this fiscal, the report said.
In FY13, international coal prices declined by about 22 per cent. However, the rupee depreciated against the dollar, making imports costlier. Power and fuel cost for producing a tonne of cement increased by about five per cent last year. This may increase by about 10 per cent this fiscal, the Care report said.
Freight costs
Diesel prices increased to Rs 52 a litre last fiscal, from Rs 43.5 in April 2012, pushing up freight costs by 15 per cent. Besides, an increase in railway freight charges, a hike in the busy season charge and development surcharge has also taken its toll.
Given the expected demand recovery, cement prices may remain elevated this fiscal, the report said. Production cost for each tonne is expected to rise by about 10 per cent, mainly due to the increase in power and fuel and freight costs. Care expects the profit margin of the industry to decline to 19 per cent this fiscal.