)
Buoyed by a robust growth in cement demand in the first nine months of this fiscal, industry analysts feel that there would be capacity addition in the coming few years.
According to a recent ICRA report on the sector, "Going forward, we expect the industry to add 25 million tonnes per annum (mtpa) capacities in FY15, 23 mtpa in FY16 and 8 mtpa in FY17 as against the peak addition of 50 mtpa in FY10."
ICRA feels that after witnessing all-time low demand and profitability in FY14, the domestic cement industry has shown some recovery in FY 15. The growth in cement production picked up to 7.9 per cent in 9M FY15 as against 3.7 per cent in the corresponding period last year and 3.0per cent in FY14.
"While cement production declined by 8 per cent quarter on quarter (QoQ) in Q2 FY14 due to arrival of monsoons, it reported a healthy growth rate of 9.8 per cent year on year (YoY) again mainly due to base effect. The growth in cement demand slowed down in Oct 2014 due to extension of monsoons in South and labour availability issues due to festive season. Further,cement companies undertook substantial price hikes in October last year and demand could not sustain at these price levels; all-India cementproduction declined by one per cent YoY in October 2014.
The industry has seen slowdown in addition of new capacities due to supply glut faced in recent times. For instance, between FY11-FY14, the industry added 65 mtpa cement capacities as against 92 mtpa in the preceding 3-year period FY08-FY11. However, slowdown in demand (cementproduction grew by 5.8 per cent during FY11-FY14 as against 7.4per cent during FY08-FY11) resulted in decline in capacity utilisation from 77 per cent in FY12 to 72 per cent in FY14 despite slowdown in fresh capacity addition. Eastern region will lead the capacity expansion and is expected to witness about 20 mtpa capacity additions during FY15-FY17 followed by Northern region (13.4 mtpa). Southern region, which had witnessed the highest capacity addition in the last five years, will see a considerable slowdown adding only 7.9 mtpa of capacity addition in the next two years.
"Assuming a demand growth of 8-8.5 per cent over the next three years, the all-India cement capacity uitilisation is likely to improve from 72 per cent in FY14 to 75 per cent in FY16 to 79 per cent in FY17. Delays in project execution and project commissioning may result in capacity utilization levels crossing 80 per cent by the end of FY17," ICRA feels.
