Cement capacity addition slows down
Cement capacity addition slows down

Cement capacity addition slows down

Due to the recent slowdown in demand and the abundance of supply faced by the cement industry, the capacity addition in the sector is expected to decelerate to 16 million tonne (mt) in the current fiscal year and reduce even further to 13 mt in the next FY. However, the sector will be osbserving an anticipated investment of Rs 7,000 to 8,000 crore over the next two years.

In the last financial year, the sector had seen a 24 mt capacity addition compared to 27 mt in 2014-15. During 2007-2012, however, the sector witnessed a capacity addition of 149 mtpa (mt per annum), compared to 109 mtpa during 2013-16. Industry approximation put current capacity utilisation in the country at 64 per cent, down from 73 per cent in 2012. Sabyasachi Majumder, Senior Vice President and Group Head, ICRA Ratings, said "Cement firms need to first achieve an optimal utilisation of 70-80 per cent, after which commissioning of new plants would be viable".

"Our analysis suggests that while capacity utili-sation in the south remains weak, capacity addition in the region would be strong over the next two years. Additionally, the east, which was reeling under severe pricing pressure till about three months ago, is also likely to witness supply influx," according to an analyst from Motilal Oswal.

Eyeing a 40 mtpa capacity within the next five years, Shree Cement is at the forefront with a 2 mtpa project in West Bengal as well as Odisha, a 2.8 mtpa brownfield project in Chattisgarh and another in Karnataka which is over 2 mtpa. Emami cement, the newest entry, will be adding 5.5 mtpa capacity in Chattisgarh with two other projects in West Bengal and Odisha. Ultratech Cement plans to set up a 3.5 mtpa plant in Dhar, Madhya Pradesh. Penna Cement, Sagar Cement, KCP Industries and other major players from the south will also likely come up with capacity additions as well. "Capacity additions in cement beyond FY 2018 are expected to slow down further, given the lack of quality limestone resources," says ICRA report.

According to ICRA, setbacks in infrastructure projects due to concerns relating to land acquisition, hindrance in securing the necessary approval and problems in achieving financial closure have led to the recent slowdown in cement demand. "Slowdown in the pace of fresh capacity additions is expected to support cement prices going forward," ICRA added.

According to Centrum Broking, the cement firms had anticipated the forthcoming demand during 2008-2010 based on which they had opted to up their production capacity.

"However, the demand didn't grow as expected and thus capacity utilisations are on the lower side. Under the present circumstances, there is actually no need to go for greenfield projects," Centrum Broking further added.

Capacity addition was at its highest in 2011, when cement firms added about 45 mt of capacity. Although the predicted growth of the segment was 10 per cent, the growth rate has been steady at 5-7 per cent in the last few years. Centrum expects the growth to show a marginal increase and go up to 7-8 per cent in the coming fiscal year.

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