The Problems Of Excess

Cement: The cement industry in India has a total installed capacity of about 91 million tonnes, with much of it in the private sector.

Strong demand from the construction industry due to absence of increase in costs on the one hand and an intermittent monsoon and pre-election demand on the other saw a significant jump in demand during the second half of the 1995-96, which resulted in firm cement prices then.

However, the demand, which during the previous year grew 12 per cent, is not expected to grow as much this year. Furthermore, a substantial addition of capacities could compound the woes of cement producers. Companies like L&T, Grasim, Gujarat Ambuja and ACC have all commissioned new facilities during the last few months. For instance, Gujarat Ambuja has added around 1.5 mt during the last year and expects to add 2.5 mt in the next two years. With an expected increase of 9 per cent in total demand, these additional supplies would only result in a surplus of 1.89 mt in 1996-97.

 

Steel: Low per capita consumption, increased government thrust on investments in infrastructure projects, the growing demand for automobiles and consumer goods are all indicators of the potential demand for steel in India.Till recently, the HR coils segment was considered very profitable in the steel sector and demand therein had recorded a smart jump. This was especially good as there had been no substantial additions on the supply side. HR coils have registered a 22 per cent growth in demand during the last two years.

However, with the commissioning of a few plants, this well-balanced scenario has now changed. Essar Steel and Lloyds Steel have started operating their facilities during the last year. After the commissioning of the new facilities, additional capacities of 2 mt have been duly added to the total installed capacity of 5 mt.

However, the consumption during the last year was around 6.4 mt. While demand is expected to grow by around 12 per cent, the capacities are expected to touch 8 mt in 1997 and around 9 mt in 1999. This would result in an oversupply scenario.

Paper: The Rs 5,500-crore paper industry has also done well in 1995-96 with a production of 2.51 mt. Of a total installed capacity of 3.9 mt, the closure of 150-odd paper mills has now resulted in only 2.93 mt of actual operational capacities.

With the demand for paper and paperboards expected to grow at around 7-8 per cent in the next two years, analysts expect a total demand of 2.72 mt in 1996-97, with domestic demand around 2.65 mt and exports accounting for 0.09 tonnes. But the situation is likely to get worse as a host of companies have capacity expansion and modernisation plans on the anvil. Companies like Bilt, ITC Bhadrachalam, West Coast Paper and TNPL all have projects lined up.In fact, analysts expect production to touch 3.8 mt by 1997-98, which would then again result in a capacity glut in the industry.

Petrochemicals: Polyester filament yarn (PFY) and poly staple fibre (PSF) prices have been continually declining since the middle of last year. Depressed prices and an oversupply situation due to huge global glut of capacities has not helped the industry.

Asian capacity in PSF and PFY seems set to grow at a compound rate of 9.9 per cent between 1995 and 2000, while demand growth is expected to be in the region of 8 per cent. The upward phase of the cycle, therefore, appears to be some way off.

While domestic demand for polyester is around 6 lakh tonnes per annum, supply is expected to increase to around 10.5 lakh tonnes per annum by the next year. Corporates such as Reliance, Indo- Rama, Nocil and IPCL have major expansion and modernisation plans on the anvil, creating another oversupply situation in the petrochemical sector.

Two other sectors which are not likely to benefit very much by lower interest rates are sugar, and possibly, white goods. Domestic sugar production this year is expected to be in the region of around 14.60 mt, while consumption is estimated to be around 13.50 mt. Globally, analysts forecast a surplus of around 4 mt. In white goods, although currently the industry is operating below full capacity, reports that Samsung and Westinghouse are planning capacities of 3 to 5 lakh units in refrigerators is not reassuring for the industry.