The current installed capacity in the industry is just over 100 million tonne. The worse news is that a major portion of it will be operating at sub-optimal level. For example, 2 million tonne capacity of Larsen & Toubro at Tadpatri in Andhra Pradesh, which has commenced production in the first quarter of 1998, and Prism Cement's 2 million tonne plant at Satna, which went on stream in August 1997, operated at just 34 per cent in 1997-98.

Post-acquisition, Grasim proposes to hike capacity of Dharani Cement in Tamil Nadu from 66,000 tonne to 0.83 million tonne. India Cement (ICL) and Madras Cement added 0.9 million tonne capacity each. Ambuja Cement Eastern's (formerly Modi Cement) capacity is being also expanded from 1.15 million tonne to 1.8 million tonne. Till June 1998, it wasoperating at barely 55 per cent.

The bottomline is that though in the south, cartelisation has resulted in higher prices, in Gujarat and Mumbai, it will be difficult because of new units.

In Mumbai, half the market belongs to Gujarat Ambuja and with demand in Gujarat declining, more cement will be dumped in Mumbai.

Consider a few more facts. Domestic demand was estimated at 74 million tonne and despite growing at 8.5 per cent for last three years, supply outstrips demand.

Exports is not an exciting opportunity either. The Asian crisis has resulted in Indonesia willing to dump. The position of other South East Asian countries are no different. The input costs for coal, freight and power have gone up by 2 per cent, 12 per cent and 21 per cent respectively, simply putting pressure on cement prices as well as profit margins of the producers. Every month brings its own set of bad news concerning the cement industry. In August, the production at 5.85 million tonne was lower by 4 per cent point compared to6.11 million tonne in August 1997.

However, despatches were up by 6 per cent to 5.79 million tonne compared to 5.46 million tonne in August.

The point of concern, however, is that in Western region (Mumbai and Gujarat) prices have nosedived. The prices in Gujarat have crashed mainly due to the impact of cyclone on exports by companies other than Gujarat Ambuja. GACL was not affected because the impact in Saurashtra was marginal.

The lower exports have resulted in higher despatches in Mumbai where prices are down by Rs 20 per bag. The low offtake in monsoon has not helped either.

The point to consider is that the prices will not show any improvement on an year on year basis even in the post monsoon period due to over capacity. But by no stretch of imagination, cement manufacturers overestimated demand. The data collected by EIW suggests that in real terms capital expenditure of the union government in 1996-97 was lower by 23 per cent compared with 1990-91 and has since then recovered but is still lowerthan 1990-91 level by 6.5-7 per cent. At 5.9 per cent of GDP i.e. 1990-91 level, the capital expenditure in 1998-99 should have been higher than the budgeted figure by Rs 37,000 crore at Rs 95,000 crore.

The slowdown in demand from the largest consumer has the logical impact on price with the capacity addition materialising mainly in last 24 months.

In fact, the situation had worsened to such an extent that despite 45 per cent import duty, cement manufacturers demanded imposition of counter vailing duty (CVD). With government cutting down capital expenditure to meet revenue expenditure and capacity additions, the prices will remain depressed and the fortune of the industry will remain depressed for, at least a year.