Cement firms in north India may meet ACC fate

With domestic cement major ACC succumbing to the economic slowdown and shutting down its 2.4-million-tonne clinker unit in Himachal Pradesh, industry experts say that other cement makers in the North may not remain insulated for long.

The possibility of either similar shutdowns or substantial cuts in capacity utilisation in the region is imminent as the overall consumption growth there is only 1 per cent, according to the latest statistics from the Cement Manufacturers’ Association (CMA).

Out of the six states in the northern region, Uttarakhand, Himachal Pradesh and Punjab have shown negative growth rate in consumption to as high as 14 per cent. However, Rajasthan and Haryana witnessed a poor consumption growth rate of 5 per cent and 4 per cent, respectively against the industry’s average growth of 7 per cent.

H M Bangur, president of CMA and chairman & managing director of Rajasthan-based Shree Cement, said, “Cement players specifically in the North are being forced to shut units due to imported cement from Pakistan. Fresh capacity is also another factor.”

Grasim Industries, part of the domestic cement giant Aditya Birla group, is adding around 8-9 million tonnes of new capacity in the region and Shree has already added 3 million tonnes. Jaypee, Binani, Ambuja, JK Lakshmi and JK Cement are the other dominant cement manufacturers in the North.

Pawan Burde, research analyst at Angel Broking, said, “In line with ACC, other players too will follow the same story. If not shutdowns, they will have to resort to substantial reduction in capacity utilisation.”

The industry’s capacity utilisation has dropped to 85 per cent in April-November period of FY09 against 93 per cent in the year-ago period. However, in the North, cement players such as Shree has said that the company will cut the utilisation to as low as 75 per cent.

“There is a possibility that companies will reduce the number of working days from six to seven days to four days a week. They would prefer to avoid inventory pile-up,” said another analyst with a domestic brokerage firm.

A L Kapur, managing director of ACC’s sister company Ambuja Cements had said earlier that it was to be seen how much patience cement makers had with piling inventories. In October, the industry reported one of the widest gaps in production and despatches with the cement inventory touching as high as 1.64 million tonnes.

The 206.46-million-tonne domestic cement industry has added over 8 million tonnes of fresh capacity so far in the current financial year. It has plans to take its capacity to 230 million tonnes by the end of the current financial year.