Chennai reconstruction to push up cement demand

Andhra recently announced a housing scheme for the poor, expected to use 3.5 mt of cement in 18 months

Cement companies with plants in Tamil Nadu, Andhra Pradesh and Telangana are expected to see a rise in demand as Tamil Nadu takes up reconstruction after widespread floods in Chennai and Andhra Pradesh builds itself a new capital city.

Since November 6, Chennai and three coastal districts of Tamil Nadu received the highest rainfall in 100 years causing damage to houses, bridges and roads. Initial estimates suggest the state government will need to spend over Rs 8,000 crore in reconstruction.

Besides, Tamil Nadu government also announced that it would build new green houses and claimed that it has clocked over Rs 2.42 lakh crore worth of investments during the Global Investors meet, which concluded in September this year.

Separately, Andhra Pradesh recently announced a housing scheme for the poor that is expected to consume 3.5 million tonnes of cement in 18 months. Also, the state government is building a new capital city Amaravati and laying concrete roads.  Cement capacity utilisation in India is around 70 per cent and it is below 60 per cent in the south, which continues to face a supply overhang.

“Rebuilding activities will to some extent compensate the decline in cement consumption during the heavy rains,” said N Srinivasan, vice-chairman and managing director of India Cements. The company has two plants each in Andhra Pradesh and Telangana and one plant in Tamil Nadu. A V Dharmakrishnan, chief executive officer, Ramco Cements, said over the next two years capacity utilisation of cement plants in the south could climb to 70 per cent. Analysts agree that cement firms in the south will report good bottom lines because they have used the downturn to improve efficiency.

Better cost management, forward integration and softening commodities prices will assist cement makers in this region as demand recovers.

South India’s cement capacity is 170 million tonnes, nearly half the 350 million tonne capacity countrywide. Andhra Pradesh and Telangana have an installed capacity of 90 million tonnes, Tamil Nadu 41 million tonnes and Karnataka 38 million tonnes. Demand is estimated to be 12.5 million tonnes in Andhra Pradesh and Telangana, 18 million tonnes in Tamil Nadu, 12 million tonnes in Karnataka and 8 million tonnes in Kerala. Which means not even half of the capacity is utilised. It may be noted, this is the first time in 35 years, such a steep drop in demand in Tamil Nadu, while Andhra Pradesh market witnessed such cycle in 80s and 90s, according to industry representatives.