Although cement demand is picking up, capacity utilisation is expected to fall even further this year as more cement plants come on stream. According to The Hindu newspaper, cement demand is likely to rise by 8% in FY12/13, lifted by rising demand from infrastructure construction and housing development projects in western and eastern India.
A forecasted 7.5% increase in GDP will help lift cement demand this year as the economy picks up again.
India’s GDP growth in FY11/12 is estimated at 6.9%, a sharp fall from 8.4% the previous year due to the impact of the Eurozone crisis, high domestic inflation and weak industrial growth.
A further 25 million t of production capacity is due to be commissioned this year. Cement plants totalling around 9 million t are due to start up in the south, while about 7 million t of new capacity is set to be commissioned in eastern India.
The impact is likely to depress the cement industry’s all-India operating ratio to about 72% this year, with the operating ratio in the south likely to be in the low 60 percentile range and eastern India in the mid to upper 60s.
Cement prices are expected to rise in northern India, which geographically is too far from southern and eastern India to be supplied from those regions where surplus cement production capacity is available. Meanwhile, cement prices and supplies have recently made headline news in the country as a result of the Competitive Commission of India (CCI) imposing a collective fine totalling Rs.60 billion (US$1.1 billion) in June for price fixing. Announcing the fine, CCI accused the companies of “limiting” cement supplies and controlling prices through an “anti-competitive agreement”. CCI’s action follows a formal complaint from the Builders’ Association of India that the 11 cement companies had formed a price cartel. The CMA has also been implicated in the price fixing issue. It has been asked to disengage and disassociate itself from collecting whole and retail cement prices from member cement companies and for circulating details on production and dispatches of cement companies to CMA members. The penalty is bigger than expected and the accused cement manufacturers are preparing to enter the appeals process. India’s three largest cement manufacturers, UltraTech, ACC and Ambuja Cements, have said they will appeal the ruling at the country’s Competition Appelate Tribunal.
India’s cement production capacity is currently estimated at about 320 million t, with 148 large and 365 mini cement plants, including public sector facilities. The CMA’s long-term target calls for India’s cement industry to reach a capacity of 550 million tpa by 2020, which will involve adding a further 230 million tpa. With the cement industry due to install around 25 million t in new cement production capacity this year, India’s total cement production capacity will reach approximately 345 million t by the end of FY12/13.
Indian Cements Ltd’s 2012 Annual Report.
The Hindu Newspaper
Published on 08/10/2012