Cement industry to see an upswing

Reason attributed to infrastructure & housing thrust in Union Budget

The cement industry is expected to find further appreciation of its current margins in the coming days due to the deepening of the imminent supply-demand gap on account of infrastructure and housing thrust in the Union Budget.

Though the demand for cement is expected to grow by an average 10-12 per cent a year, the industry till now has been maintaining stoic silence over any expansion plans in the state and outside.

In Andhra Pradesh, which is one of the leading cement producers in the country, the cement industry expects a double impact starting from October 2005 when the construction work of several irrigation projects undertaken by the state government is expected to begin.

"The efforts to optimise the existing production capacities of the Indian cement industry to utilise the demand situation will only have marginal results as the production of portland pozzalina cement (PPC), which is a blend of regular clinker and fly ash, has already gone up to a maximum in the face of acute fly ash scarcity," S R B Ramesh Chandra, president of All India Mini Cement Manufacturers Association, and managing director of Coromandel Cements Limited, observed.

With the production capacity in terms of clinker remaining constant, the fly ash content in PPC cement adds to the volumes as it constitutes 25 per cent of the end product. According to Ramesh Chandra, the proportion of PPC in total cement production has jumped to at least 55 per cent this year as compared to 44 per cent during 2003-04.

The cement prices have already been witnessing upward revision in several places like Delhi, Chennai, Mumbai and Andhra Pradesh mainly due to its surplus status. The state produces 22 million tonnes of cement out of which the local consumption accounts for just 11-12 million tonnes.

For the past few months the price of the cement bag in the state is ruling between Rs 120 and Rs 137 as compared to Rs 165 in Delhi which rose from Rs 125 per bag in October 2004.

Similarly, the prices in Mumbai, Chennai and Kerala have risen to Rs 185, Rs 170 and Rs 190 in that order as compared to Rs 125, Rs 120 and Rs 125 respectively in last October.

According to the industry projections, the local consumption is expected to grow to over 14 million tonnes in Andhra Pradesh in the year 2005-06 and the exports from Andhra are also expected to grow up to 2.5- 3 million tonnes from the existing 1.5 million tonnes during the current year.

This, combined with the growing demand across the country, is likely to affect the prices in Andhra Pradesh too in the coming days. When it comes to growing exports, the cement manufacturers are apprehensive of some restrictions by the Centre to contain supply demand gap in the days to come.

"No significant expansion is expected to take place in the next couple of years even as demand is catching up because the industry has learnt hard lessons after its over enthusiastic expansion drive between 1995 and 1997 when a whopping 40 million tonne capacity was added then as compared to the overall production of over 140 million tonnes now," Ramesh Chandra told Business Standard.

According to him, the share of consumption of cement by the housing sector in percentage terms is expected to come down from the current 65 per cent in the next fiscal to a much lower level as the other infrastructure activity is expected to increase with the impetus from the government.

Double impact

• Cement industry expects a double impact starting from October 2005 when the construction work of several irrigation projects undertaken by the government is expected to begin
• Cement prices have already been witnessing an upward revision in several places
• Local consumption is expected to grow to over 14 million tonnes in AP in 2005-06