South India will see a significant ramp up in cement capacity this fiscal. About 17 mt of fresh capacity will be added in Andhra Pradesh alone, the largest cement market in the southern region. However, this capacity build up comes at a time when the state faces a prolonged period of slump in cement demand. Thus, at the end of this year, the installed capacity in the south will reach 127 mt including 71 mt in Andhra Pradesh, 34 mt in Tamil Nadu, and 22 mt in Karnataka.
In Andhra Pradesh, the Nalgonda cluster will account for close to 9 mt of fresh capacity, followed by the Yerraguntla 3.20 mt and Kurnool with 3 mt. The companies that will add capacity include Jaypee Cements 2.50 mt, Zuari Cements 2 mt, Penna Cements 1.50 mt, NCL 1.40 mt, and Andhra Cements and KCP Cements 1 mt each.
In Tamil Nadu, Madras Cements and Chettinad Cement will be adding 2 mt each of fresh capacity in early next financial year, adding pressure on the already depressed prices. Work on these two plants was underway and will go on stream at a time when no dramatic increase in demand is in sight.
The glut in Andhra Pradesh companies will dispatch cement to Tamil Nadu, West Bengal, Assam and Maharashtra, adding the freight cost substantially in these cases. Recently the Railways have raised its basic freight rate by 1-5 per cent and has been structured in such a way that it is marginal for short lead and progressively higher for longer distances. This translates into cement price hike ranging from Rs 25-40 a tonne of cement or an approximate increase of Rs 2 a bag at the highest slab. According to reports, cement now is sold at Rs 210-235 a bag in Andhra Pradesh, Rs 250-255 in Tamil Nadu, Rs 250-270 in Karnataka and Rs 300 in Kerala.