Cement industry to add 111 mn tonne capacity by 2010

The cement industry is poised to add 111 million tonnes of annual capacity by the end of 2009-10 (FY10), riding on the back of an estimated 141 outstanding cement projects.

The surplus position, that was long enjoyed by the industry, is steadily on the decline on account of increased demand. According to recently announced expansion plans, installed capacity is expected to increase to 186 million tonnes per annum (mtpa) by FY08-end, and 219 mtpa by end of FY09, and up to 241 mtpa by FY10-end, says the latest ICRA Industry Monitor report.

The report predicts that considering an expected production and consumption growth of 9 to 10 per cent during this year, the demand-supply position of the cement industry is expected to improve from 2008-09 onwards, resulting in an expected price stabilisation.

Cement prices shot up from Rs 158 a 50 kg bag in December 2005 to Rs 229 for the same quantity this July, while the wholesale price index (WPI) for cement increased 9.1 per cent in FY07, compared with 3.9 per cent during FY06.

Pakistan, which has a surplus of 10 to 12 million tonnes (mt), has shown interest in exporting cement to India, and the landed cost of cement imported from that country is Rs 170 a 50 kg bag.

Large imports, however, are unlikely to happen given the bulkiness of the commodity. The government has, in a bid to check cement prices, abolished the import duty on cement this year.

Domestic cement consumption for the first half of the financial year was 53.62 mt, up 10.9 per cent from the same period last year. Exports of the commodity declined 37.7 per cent during the period.

Apart from an increase in installed capacity from 165.6 mtpa at March-end to around 171 mtpa at July-end this year, higher domestic demand has resulted in increased capacity utilisation. The industry's capacity utilisation was 96.9 per cent during the April-July period.

Major players like ACC, Grasim Industries, Gujrat Ambuja Cements, operated at over 90 per cent capacity during this period. ACC was the largest producer with 15.35 mt. Next was Gujarat Ambuja with a production of 13.64 mt, followed by Grasim at 12.57 mt. All major players have resorted to a combination of greenfield capacities and takeover of existing capacities for growth.