Gujarat-based cement manufacturers may lower their capacity utilisation as the export ban last month has led to a situation of oversupply.
The production of cement is likely to be brought down in the wake of inadequate logistics for transporting the output to neighbouring states and inability of Gujarat to absorb the yield.
A top executive in the Cement Manufacturers' Association (CMA), said, "The oversupply situation in Gujarat (the foremost state in cement exports) will sharply erode the profitability of cement companies. Some cuts could follow in their capacity utilisation."
The country exported 3.65 million tonnes of cement and 2.37 million tonnes of clinker in 2007-08, with Gujarat accounting for over 90 per cent. Industry analysts said that the state is facing the immediate impact of export ban and there could soon be a marginal decrease in utilisation by around 3-4 per cent.
A L Kapur, managing director, Ambuja Cements, said, "I cannot say whether there will be cuts in capacity utilisation. But if there is a situation of oversupply, we will produce and sell only that much of cement that can be absorbed by the market."
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Ambuja Cements, the country's second largest cement maker after ACC, produced over one-fourth (4.8 million tonnes) of its annual cement production (16.9 million tonnes) from its Ambujanagar plant (one of the largest cement unit in the country) in Gujarat in 2007. UltraTech, Saurashtra Cement, Gujarat Sidhee Cement and Sanghi Industries are the other cement manufacturers in Gujarat.
"We do not have any plans to go for production cuts in Gujarat," said K C Birla, chief financial officer, UltraTech Cement. The company has three cement units in the state at Pipavav, Jafrabad and Magdalla.
Gujarat's consumption of cement is 24 per cent less than its overall production. It consumed 11.67 million tonnes of cement in 2007-08 against a production of 15.39 million tonnes. The remaining component was exported.
Hitesh Agarwal, research head, Angel Broking, said, "Reduction in capacity utilisation is the only way out for the cement companies if they want to survive in an oversupply situation. Gujarat is facing the immediate impact of glut. This phenomenon will be witnessed in the entire industry in a year and half when capacity utilisation will be brought down to 85-90 per cent from the current average of 100-105 per cent."
According to market sources, due to new capacity additions by Grasim and Shree Cement in the north, the north-based players too could go for a decline in capacity utlisation.
The domestic cement industry added 23 million tonnes of fresh capacities in FY08, taking its overall installed capacity to 189 million tonnes from 166.73 million tonnes last year.