MUMBAI, March 3: Cement prices are likely to remain depressed, with the north and east most affected, as a result of the capacity overhang that continues to plague the industry, says a study conducted by SBI Caps. The study predicts that recovery in the cement sector will have to wait till the turn of the millenium.
The northern and eastern markets will be worst affected, and even the post-monsoon demand surge has failed to drive up the depressed prices, the cement sector update states.
South India, where the prices are relatively stronger, witnessed a 3 per cent decline in cement prices over the corresponding period last year. The depressed prices in the southern markets is all set to continue due to increased supplies from the new units of the two leading players--India Cements and Madras Cements.
The last two years have seen a capacity build-up of around 21 million tonnes across the country, which has resulted in "substantial" overcapacity. "In view of lower than expected growth in demand, most ofthe capacity expansions have been delayed or put on hold," the study states. It says new-capacities going onstream in the financial year 1998 and 1999 will be in the region of 7.44 million tonnes and 7 million tonnes respectively.
Production during April-December 1997 increased 9.54 per cent as against 9.4 per cent in the corresponding period in the previous fiscal. The growth has been particularly high in the third quarter of the current financial year, as production surged by a whopping 19 per cent as against 5.6 per cent in the third quarter of fiscal 1997. The cement production in the current financial year is likely to increase by 10 per cent, with total output touching 77 million tonnes, the study says.
Consumption, on the other hand, are likely to grow at a modest 8.7 per cent in the current financial year. During April-December 1997, cement consumption went up by 7.9 per cent during April-December 1997, while that in the southern states of Tamil Nadu, Karnataka and Kerala were relatively higher at9 per cent. Other states to have recorded above average industry growth are Gujarat (11.5 per cent), Bihar (22 per cent), Himachal Pradesh (13 per cent) and Rajasthan (10 per cent).
The supply overhang will be predominant in the northern region, comprising Delhi, Haryana, Himachal Pradesh, Jammu & Kashmir and Rajasthan, as supply is slated to shoot up by 22 per cent in the current fiscal. Inspite of the region growing at a CAGR of 9.5 per cent until the year 2000, the supplies are likely to outstrip demand and prices are likely to remain under pressure, the report has stated. The Souther region, on the other hand, is all set for substantial capacity additions, with consumption likely to increase at above industry rates of 9.5 per cent, 10 per cent and 12 per cent in the next three years. The last two years has seen a capcity expamsion of 3.27 million tonne and another 6 million tonnes are expected to go onstream by the year 2000.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
