The cement sector bas been reeling under a crisis for more than 12 quarters now. Companies are continuously losing pricing power, while costs continue to rise
Companies are continuously losing pricing power, while costs continue to rise. Consumption growth is in mid-single digit trajectory, while a massive one-fourth of the overall capacities is lying unutilised.
Grip of negative factors is only getting tightened, affecting the industry to such an extent that domestic majors either witnessed flat growth or negative growth in cement sales. No wonder, with such performance apprehensions are whether the sector will be able to clock the five-six per cent growth in 2013-14, the rate with which the industry is growing for last three years.
“This year, we may not even see five per cent growth. It could be somewhere at around three per cent,” said V Srinivasan, research analyst at Angel Broking.
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ACC said, “Based on current demand indications, we do not foresee any significant improvement in the cement market in the near term.”
H M Bangur, chairman and managing director of Shree Cement, told Business Standard: “We are selling cement at a five-year low price. The outlook is not bright.”
Bangur, however, said ups and downs were part of the business cycle. “But, I would say, these are more than simple ups and downs, (may be) like a roller coaster.”
Shailendra Chouksey, whole-time director of JK Lakshmi Cement, said, “If economic growth remains poor, cement industry cannot grow.”
Industry players and analysts had expected an upsurge in growth in the second half of FY14, as it is an election year. This raises concerns over the practicality and feasiblilty of the target set by the working group on cement industry for the current Five-Year Plan, 2012-17. According to the report, industry will have a capacity of close to 470 million tonne per annum (mtpa) by 2017.
India’s sector, the world’s second largest after China’s, is already sitting on overall capacity of 360 mtpa. Taking into consideration an addition of 10 per cent per year from here, the plan target can easily be achieved. But, would this strategy be good for the sector?
Capacity is affecting the industry for more than half-a-decade now. The over Rs 50,000 crore rapid expansions done during 2007-12 to nearly double the capacity from 180 mtpa – the fastest in sector’s history – has proved to be a self-made trap for the cement makers. Amid lower cement offtake, capacity utilisation is below 75 per cent (while in some regions it is not more than 60 per cent).
“When those targets were made, people had not anticipated the current slowdown,” says Chouksey. According to him, industry’s current capacity is enough to take care of the demand in the next couple of years.
This holds true. Simple calculations with an 8% growth assumption for next four years will put India’s cement consumption at around 355 million tonne. Though, industry officials do not want to hazard a guess that growth will be more than 6% for next couple of years. The country’s current cement consumption stands around 260 million tonne.
