Demand for cement may grow in the range of 2-5% in 2012 due to poor offtake from both construction and infrastructure sectors, rating agency Fitch said today.
"The demand for cement is expected to grow in the range of 2% to 5% in 2012. We expect the higher-end of the range to materialise if interest rates fall, leading to an increase in construction activity," Fitch said.
Around 40% of the country's cement demand comes from the real estate sector, while the remaining is driven by the infrastructure activity. Cement demand grew marginally in FY10-11 to a little over 200 million tonne.
"Activity in both these sectors is expected to remain muted given low real credit growth," it added.
Most cement companies are expected to experience pressure on margins in the current fiscal due to a rise in operating costs, Fitch said, adding pressure on margins may continue due to the increased price of imported coal, which is further aggravated by a depreciating rupee.
An existing over-capacity scenario is already there in the cement sector since a long time. The rating agency said operating margins are expected to be stressed as a result of structural overcapacity, which is likely to continue at least until early 2013.
"We expect capacity utilisation to fall to 72% in FY11-12 from 77% in FY2010-11. Southern region's capacity utilisation is expected to fall to 59% in from 63% in FY'11 due to a larger share of capacity increases, followed by the eastern region which is expected to fall to 79% in FY'12 from 83% in FY'11," it said.
About 24 million tonne of new capacity has already been added as on September-end, Fitch said, adding that given the existing demand-supply mismatch, some of the planned capacity increase might be postponed.
India's installed cement making capacity stood at around 300 million tonne a year by the end of 2010-11.
