Cement firms' capacity use dips to four-year low

The cement industry's capacity utilisation has dropped to a four-year low as demand from construction and other sectors slowed. The dip can also be attributed to the addition of new capacity.

The capacity utilisation of cement-makers, which has been on the wane since April 2008, has dropped to 82 per cent in the second quarter ended September 2008 as compared to 90 per cent in the corresponding quarter a year earlier.

The drop was also exacerbated by the addition of 31 million tonnes of fresh capacity in the past year, a report released by Motilal Oswal Securities showed. In the first half (April-September), the capacity utilisation was 85 per cent, whereas for the same period last year it stood at 93 per cent.

The recent sharp fall in utilisation comes in the backdrop of the manufacturers stepping up production to 100 per cent of their rated capacity in the fourth quarter of the financial year ended March 2007.

Ultratech, the Aditya Birla group company, had in a recent statement indicated that with the slowdown in real estate, new construction, infrastructure and corporate capital investments, demand for cement is expected to grow at a slower pace of 7-8 per cent against 9-10 per cent forecast earlier.

It was in the second quarter of FY06 that the industry had registered a low 83 per cent of capacity utilisation. In the June quarter, the industry had registered a capacity utilisation of 89 per cent.

The industry players at the start of the current financial year had anticipated a fall of 8 per cent in utilisation for the entire year, that is 87 per cent against 95 per cent in FY08.

"Cement demand has been moderating over the last few quarters, from 10 per cent in FY08 to 8 per cent in the first half of FY09. Slowdown in housing in particular and the economy in general will further impact cement demand. Growth in cement demand for the rest of the current financial year is estimated to moderate further to 6-8 per cent," the report said.

During July-September, the country produced 41.67 million tonnes of cement against 39.13 million tonnes in the corresponding period last year, up 6.49 per cent.

The cement industry is likely to add around 30 million tonnes of capacity in the current financial year, taking the overall capacity to 230 million tonnes by March 2009. Industry analysts said that in FY10, the capacity utilisation will take a plunge to 74 per cent.