The domestic cement industry may not keep its promise of adding 32 million tonnes as new capacity in FY09 and end up adding over 25 per cent less capacity to a maximum of 25 million tonnes.
Delays of 4-6 months resulting due to land acquisition, equipment supply delay, liquidity crunch and more importantly the unexpected slow growth rate in cement demand coupled with squeezing margins and pricing under pressure will let the industry reach an overall capacity of 223 million tonnes against 230 million tonnes as anticipated earlier, say market players.
According to the latest updates from the Cement Manufacturers’ Association (CMA), industry added only 8.16 million tonnes between April and November. Rain Commodities, India Cements, Madras Cement, Mangalam Cement are among others who have expanded their capacities. This is one-fourth of the proposed capacities for the year at a time when three-fourth of the year has passed by.
Sumit Banerjee, managing director, ACC, said, “As per our calculations, industry will be able to add another 15 million tonnes by March, 2009 as there are some delays in some projects.” In March, 2008, industry had an installed capacity of 198.3 million tonnes and H M Bangur, president of CMA had said that industry would add around 32 million tonnes in FY09.
| PACK-To-PACK GROWTH Capacity as on March 31 in the last five years | |
| Year | Capacity |
| 2004 | 146.64 |
| 2005 | 154.29 |
| 2006 | 160.24 |
| 2007 | 166.73 |
| 2008 | 198.30 |
| 2009* | 223.00 |
| * Current expectation of the industry All figures in million tonnes Source : CMA | |
Amrit Lal Kapur, managing director, Ambuja Cements, said “The year 2009-2010 will see tougher times than what the industry witnessed in the current year. I believe industry will manage to add capacities to the tune of 23-25 million tonnes in FY09.”
Similar views were expressed by Vinod Juneja, managing director of Binani Cement and A K Saraogi, chief financial officer of J K Cements, who see 32 million tonnes as a remote possibility. The Aditya Birla group - the domestic cement giant - with its cement making company Grasim Industries and UltraTech, is the major player coming up with around 13 million tonnes of capacities by the end of FY09.
Cement players and analysts said that at least it is as a blessing in disguise for the industry as less capacity comes up since existing capacities are not being fully utilised with capacity utilisation dropping to as low as 82 per cent against last year’s 93 per cent.
“Companies will have to reduce their capacity utilisation as fresh capacities come up and demand growth remains low,” said Pawan Burde, research analyst at Angel Broking. Though industry men have made it clear that the expected capacity is not going on stream in FY09, there is something to cheer as industry will manage to meet the target set by the Report of the Working Group on Cement Industry for the eleventh five year plan (2007-12).
The Report, which predicted a growth rate of 11.5 per cent in cement industry, had stated that capacity needed by 2008-09 will be 219.46 million tonnes, which is rather less than what industry will manage to add. However, this has put the industry in jeopardy as the actual growth rate has dropped to 7-8 per cent, resulting into more mis-match in supply and demand leading to crash in prices.
