Cement prices are expected to remain depressed for the next few months. Adding to the general problem of weak demand is the recent trend of large-scale cancellation of exports which will add--though marginally-- to the oversupply situation in the domestic market. Free-on-board prices of cement in the international market have fallen from $50 per tonne to $24 per tonne on the back of lower demand.Prices in the international market are further expected to fall to $20 per tonne, thereby belying hopes of a revival of exports in the near future. The south-east Asian crisis, which is adversely affecting the whole range of industries, will have a small impact on this industry as well. Indian exports, which were at 3.7 million tonnes last year, are expected to further go down as demand from this region has fallen.
With exports of cement and clinker being hit, the same amount of cement will be available for sale in the domestic market. This means that the industry, which is already facing domestic oversupply,will have to deal with this spillover effect as well.
Moreover, the expansions going on in this industry will lead to an additional capacity of about eight million tonnes this year. Domestic oversupply and falling exports will force a further shutting down of mini-cement plants and many them are likely to be put up for sale.
The first half results of cement manufacturers already show the depressed state of this industry for which the sales have fallen by two percent over last year.
The interest component has increased by 15 per cent and the rate of depreciation has also increased for this industry by another 13 per cent.The severe supply/demand imbalance facing the industry has depressed realisations at a time when cement has suffered sharp increases in several administered cost elements. The general industry outlook is that very few of the huge number of cement projects announced will see the light of day.
The need for captive infrastructure is absorbing cash that would otherwise have been used fornew capacity.
The diversion of cash accruals to building captive infrastructure (mainly power) will add to the woes of this industry. Currently, this highly fragmented industry is seeing a spate of mergers and acquisitions and undergoing a process of consolidation.
Analysts say that second half of 1998-99 will see a situation of deficit emerging in the east. Madhya Pradesh is the dominant supplier in this region with some 19.5 million tonnes production, but years of poor cash accruals have taken their toll on the players in this region.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
