Cement output growth to register slow down in FY08

Companies see growth back on track by next year.

This financial year, the domestic cement industry is expected to witness the third lowest production growth rate in a decade at 7 per cent.

However, companies said it was just a temporary phase and more due to a high base effect. Things would be back on track with 9-10 per cent growth in production from the next year onwards, they said. 

UNSTEADY CLIMB
Year	Production (million tonne)	Per cent change
2000-01	93.61	-0.63
2001-02	102.4	9.39
2002-03	111.35	8.74
2003-04	117.5	5.52
2004-05	127.57	8.57
2005-06	141.81	11.16
2006-07	155.66	9.76
2007-08*	166.76	7.13
* March production assumed at 15.5 million tonnes (till February,2008, production was 151.26 million tonnes) Usually, the cement industry grows 2 percentage points more than the GDP Things would be back on track with 9-10 per cent growth in production from the next year onwards

Assuming that in March, traditionally, the best month for the industry, the production is around 15.5 million tonnes, the overall production for FY08 will add up to 166.76 million tonnes, up 7.13 per cent, as compared with 155.66 million tonnes in the previous year. In FY07, the production grew 9.76 per cent.

H M Bangur, managing director, Shree Cement and president of the Cement Manufacturers' Association, said, "Two consecutive years of strong production has led to a high production base in FY07, which is 20 per cent more than what it was in 2004-05. This kind of growth is not easy to continue."

Except FY01 and FY04, the industry has seen a growth rate of more than 8.5 per cent this decade. In FY01, the industry's production declined 0.63 per cent. It was 5.52 per cent in FY04.

Bangur said the fall in the growth rate below the GDP rate was temporary in nature and there were no reasons to worry. "We believe the production rate will remain in the 9-10 per cent region in years to come," said Bangur.

Usually, the cement industry grows 2 percentage points more than the GDP.

Hitesh Agarwal, research head, Angel Broking, said, "Since all cement players are producing at 100 per cent-plus capacity utilisation, the high base last year is the main cause for pulling the growth rate down." Till 2005-06, there was a lot of unused capacity. This was being used in the last few years, he added.

"The expected new capacities could not materialise this year, which is another reason for the slow down in production growth," added A K Saraogi, chief financial officer, JK Cement.

Industry analysts say consumption is fast outpacing supply. However, from FY09 onwards, the cycle would change with commencement of new projects.

Till date, the cement capacity stands at 174.18 million tonnes per annum (mtpa) which was 166.73 mtpa at the beginning of FY08.