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| According to report prepared by Enam Securities India, the reduction in supply in the northern part of the country coupled with presence of only one national player, Gujarat Ambuja-ACC, would cause price instability.
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| However, short term price fluctuations, the report said, might appear with the entry of leading national players or foreign giants, signs of such possibilities were not being felt, experts said.
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| Traditionally, the northern states suffer from shortage of supply. A part of the markets in Punjab, Himachal Pradesh, Haryana and Delhi are fed by local production while a bulk portion of the demand is brought from Rajasthan.
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| The study said imbalance in cement supply was created within the country for two reasons. One, surplus capacities are not come up across the country and secondly, cement could not always be brought from a surplus state to a deficit one.
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| Cement is normally brought from central India to north, west and east zones. However, supplies from West and South, where capacities being expanded, could not be transported to North and East due to geographical disadvantages, creating imbalances in the regions.
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| Incremental demand in the country, the report said, would be nine million tonnes in next three years. The figure was seven million tonnes in the past three years. The rise in demand would be mainly due to increase in housing and infrastructure activities.
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| The supply side problem of the industry was that no major capacity expansion took place in recent years. Industry was highly leveraged and marginal players were under severe pressure.
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| Reason for not creating of fresh capacity could be absence of sales tax incentives which, in turn, increased operating cost structure of a new plant significantly high.
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| The current level of RoCE (return on capital employed) could not sustain greenfield capacity expansion. The report estimated aggregate operating cement capacity would stand at 135 million tonnes in 2003-04. |
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