Cement Demand to keep pace with rising capacity

Despite another 8-10 MT capacity coming onstream by March, prices may rise.

Despite a rise in capacity, cement players are expecting that capacity utilisation will not be adversely impacted, due to rise in demand.

An extra capacity of 8-10 million tonnes (MT) is expected to come onstream in the next two-three months. Yet, industry players expect the average capacity utilisation will rise from 79 per cent to 80-81 per cent by March. On an average, cement prices in the first quarter of 2010 may also go up 5-10 per cent.

According to Vinita Singhania, managing director, JK Lakshmi Cement and president, Cement Manufacturers’ Association (CMA): “We expect the demand to grow at a steady 10 per cent rate next year. Also, the current capacity utilisation of the industry is quite low at 78-79 per cent, compared to 86-87 per cent in December 2008. We do not see this period of low capacity utilisation to last for long. It should steadily improve and reach 90-92 per cent in the long term.”

The net installed capacity was around 205 MT in December 2008 and by the end of the 2008-09 financial year, it had touched 225 MT. Around 30 MT of additional capacity has been already added this year and by March, the net installed capacity would reach around 260 MT and the effective capacity available should be 250-255 MT, said Rupesh Sankhe, analyst with Angel Broking.

He added: “As domestic consumption and exports together are expected to be 190-195 MT at that time, the average capacity utilisation should not be lower than 80 per cent. On a year-on-year comparison, while capacity has increased0 15 per cent in December 2009, the consumption growth is around 7-8 per cent. Going forward, demand from real estate and infrastructure is expected to pick up during the January-February quarter and should reasonably offset the incremental capacity.”

Cement major ACC is all set to inaugurate its 1.6 MT per annum (mtpa) grinding unit in Kolar district of Karnataka near Bangalore, while another 1.1 mtpa grinding unit is expected to come onstream in Bellary district of Karnataka early next month, informed a company spokesperson. “We are expecting around 3 mtpa of additional capacity to be commissioned within the next six months,” he said, adding that the company currently enjoys a capacity utilisation of 90 per cent. “While the capacity utilisation could vary next year owing to addition, we expect robust demand from the infrastructure and housing segments to drive our consumption,” the spokesperson claimed.

Some of the capacity that will be available during the coming quarter will come from plants that have already been commissioned and are now running on trial production. For example, JK Lakshmi Cement had enhanced capacity by a 0.8 MTplant this July and is expecting to benefit from the additional production now. Shailendra Chouksey, director of JK Lakshmi, said: “We have started getting benefits from the additional production from this month, as it takes some time before production is stabilised.”

Jaypee Cement has commissioned a 2.4 MT plant recently at Sewagram in Kutch and now enjoys a net installed capacity of 17.1 MT. Production from this plant is also expected to stabilise during the coming three to four months. This apart, Sankhe pointed out that around 1 mtpa capacity is expected from Andhra Cement and Madras Cement, each down south.