| What is more, cement companies are poised to expand their production capacities, and perhaps even raise prices, which have remained high. |
| Said AK Jain, executive director, The Associated Cement Companies: "Firm economic growth and the good monsoon have augmented the growth of the cement sector this year. The narrowing of the demand-supply gap in the northern and western markets has boosted cement sales in these regions." |
| Look at the evidence. Industry despatches "" a measure of demand "" will be around 122 million tonnes this year, up from 114 million tonnes in the previous year. |
| Domestic despatches in the first 11 months of the year, between January and November, were 112 million tonnes, up from 104.8 million tonnes in the corresponding period of the previous year. |
| Secondly, average domestic retail prices have risen by around 10 per cent this year. "Prices have been extremely good in May, June, July and August. In the western and northern regions, retail cement prices were higher by almost 15-18 per cent in these months," says a cement industry analyst. |
| The price of a 50 kg bag of cement in Kolkata reached a record Rs 175-180. Said Shivesh Sinha, chief financial officer, Lafarge India: "Although prices in the east have remained stable, the sharp increase in costs, owing to the increase in rail freight and coal price, is likely to push prices further next year." |
| Thirdly, notes P Ravishankar, an I-Sec Securities analyst, the average capacity utilisation in the cement industry, now around 86 per cent of the capacity of 140 million tonnes, is rising. Ravishankar believes capacity use will climb by another 3-4 per cent. |
| "Since there has been no major capacity addition over the past couple of years, companies have started increasing capacity utilisation," he pointed out. |
| Although the leading cement companies have not announced any major capacity expansion plans, the Bangur-controlled Shree Cement in Kolkata plans to set up a 1 million tonne greenfield project. This will come up in early 2006. |
| The surge in demand for cement has been fuelled by consistent demand in the eastern market even during the monsoon when demand generally tumbles. |
| A similar situation prevails in the north and west. The exception to the rule? The south, particularly Andhra Pradesh, where there is a surplus. Industry observers said new capacities were likely to come up in north India in 2005 to cater to the growing demand. |
| "Cement companies in the north will not only look at brownfield expansions and de-bottlenecking, but also plan to add fresh capacity," said an executive of a leading cement company. |
| India's cement companies have also gained from the construction boom in the Middle-East, which has pushed up world cement prices. Gujarat Ambuja, UltraTech Cemco and the Gujarat-based Sanghi Cements have stepped up exports to the region over the past few months. |
| Finally, nearly every cement company believes 2005 will be the year of acquisitions. Earlier this year, Anil Singhvi, executive director, Gujarat Ambuja Cement, told journalists in Mumbai: "We are looking to grow through the inorganic route and are exploring the northern and north-western regions for acquisition opportunities." |
| The company completed brownfield expansions at two of its plants in Ropar, Punjab, and in Darlaghat, Himachal Pradesh, this year. |
| After acquiring UltraTech CemCo, Larsen & Toubro's cement business, the AV Birla group is now the largest cement manufacturer in the country, with an installed capacity of 31 million tonnes. With this acquisition, around 55 per cent of the cement producing capacity in the country has come under the three largest companies. |
| What else does the year ahead hold for cement companies? Senior industry executives expected the construction and housing boom to continue. Concluded ACCs Jain: "If the economy continues to grow at this pace, the next year will see despatches grow by around 8 per cent." |
| Firm Foundations |
| PRICES: Average retail prices have risen by 10% in 2004; the price of a 50 kg bag in Kolkata reached a record Rs 175-180 |
| CAPACITY UTILISATION: 86% of the capacity of 140 mn tonnes; industry people say capacity use will climb by another 3-4% |
| WHAT'S FUELLING DEMAND? Firm economic growth; housing boom |
| WATCHWORD, ACQUISITION: Inorganic growth will be the norm; already 55% of the capacity in the country is with the 3 largest companies |
Explore Business Standard