While the cement companies have raised prices across the country in the last one week saying the demand is likely to improve post monsoon, the fact is that industry’s average capacity utilisation across the country declined in the first six months of the current financial year. In other words, price rise was due to a fall in the production.
Capacity utilisation has fallen when the industry has been adding new capacities. In the first half (H1), however, cement production has grown in absolute terms. According to the Cement Manufacturers Association (CMA), the country produced 83.24 million tonnes (mt) during April-September this year, as compared to 81.69 mt last year in the corresponding period.
From April to September, the cement industry has witnessed a fall in capacity utilisation across the country compared to the same period last year. Last year, in the first quarter (April-June), capacity utilisation was 78 per cent, which has fallen to 75 per cent this year. To add to it, the average capacity utilisation in both the quarters is 70 per cent as compared to 74 per cent during the corresponding period last year.
Shailendra Chouksey, whole-time director, JK Laksmhi Cement, said: “Indeed capacity utilisation this year is lower than the last year. There are various reasons for this. First, the demand growth has been poor across the country. Second, capacities have been expanding, but players are not using capacities at an earlier rate. The planning commission had projected in its eleventh five-year plan that the country would require 300 mt cement whereas the actual consumption is far less than that. In the last one-and-a-half year the demand has been constantly falling, even government projects are witnessing a slowdown and the demand is not at all keeping pace with the supply.”
Another reason for drop in capacity utilisation in the last six months is the existing inventory lying with the manufacturers as a carryover from last year, which needs to be sold in addition to the ongoing production.
A senior analyst with a domestic brokerage said, “The capacity utilisation for south-based plants declined to 60-65 per cent and for north-based players, it was around 75-80 per cent. So, the total average comes to be 70 per cent, which is lower than last year. Also new capacities which were added at the end of last year have streamlined and are producing at full level.”
V Srinivasan, research analyst with Angel Broking said, “The cement despatches for September have fallen on a month-on-month basis, and on yearly basis they registered negligible growth of 1.5 per cent. The utilisation in the southern states is low at 60-65 per cent depending upon the players.”
The central region is clocking the highest utilisation rate at around 86-88 per cent, followed by eastern and northern market which is utilising around 75-80 per cent. The western and southern region has managed to pull down the average for the country by utilising a mere 60 per cent of its capacities.
Cement manufacturers in the southern region had unitedly reduced capacity utilisation from October last year to keep their margins intact. Following their footsteps, northern and western belt saw utilisation tightening from January this year which is affecting the country’s average.
Another analyst adds, “Smaller companies have a lower utilisation ratio as compared to grade A players. ACC’s utilisation is around 78-80 per cent. So, from last year’s national average of 80-83 per cent, its a significant fall to 70 per cent.”
After the monsoon season, analysts were expecting healthy production and despatch numbers for September, which failed to bring cheer for the sector. Adding to it, the Telangana row has impacted sales in Andhra Pradesh, which includes the likes of India Cements, say analysts tracking the company.
Srinivasan adds, “ Capacities which were added late last year have also stabilised and production has started from those plants too. In September, 16.3 mt cement was produced and the average capacity utilisation in the country was around 72 per cent for the period.”
