The Hindu Business Line : Cement sales grow 11% in Q1 this fiscal

Industry players say that the additional cement capacity that came on stream in 2008-09 was has been absorbed by the market, indicating that demand continues to be robust. They anticipate sales to pick up further once the Government spending on infrastructure projects, as outlined in the Budget, gathers momentum.

In this context, the players do not anticipate any pressure on prices for the better part of this financial year apart from due to seasonal variations in demand.

In 2008-09, about 23 million tonnes of cement capacity went on stream, taking the total installed capacity in the country to 212 mt. The industry expects another 20-25 mt of capacity to be added this year, but in a staggered manner giving enough time for the market to absorb the additional capacity. A bulk of this capacity is likely to go on stream in the last quarter of the financial year.

Addressing journalists while releasing the company’s fourth quarter and 2008-09 results last month, Mr N. Srinivasan, Vice-Chairman and Managing Director, India Cements Ltd, said, “this year also we will be okay (in terms of demand).” The market had absorbed the additional capacity that came on stream during the year and a bulk of the capacity addition this financial year was likely to happen in the fourth quarter.

Flat sales

Andhra Pradesh, which is a large market in the southern region, saw near flat sales during the first quarter of this financial year – at 4.42 mt compared with 4.41 mt in the first quarter of the previous financial year.

The industry attributes the flat consumption in Andhra Pradesh to the elections, because of which a number of Government projects were held up. The Andhra Pradesh Government has initiated a number of projects such as low-cost housing and irrigation schemes, which are major consumers of cement. Now that elections are over, the projects should take off, said Mr Srinivasan.

Mr A.V. Dharmakrishnan, Executive Director – Finance, Madras Cements Ltd, felt it was a matter of time before cement demand picked up in Andhra Pradesh, which would result in the southern market getting back to healthy double-digit growth figures.

Mr Vinod Juneja, Managing Director, Binani Cement, said sales in the first quarter were aided by the delayed monsoon, because of which cement purchases continued till June end, at least in the western and northern regions. Besides, large infrastructure projects were taking off across the country and with the Government promising higher outlay for infrastructure projects, consumption should continue to be good.

According to him, prices were also holding steady, except in some markets where they have dipped marginally. On an average, the prices should be about Rs 260 a bag of 50 kg in the large markets.

Expansion plans deferred

Industry representatives say that a few companies have deferred their expansion plans by two to three quarters due to higher cost of funding and fears over surplus capacity in the market. This would ensure that prices remained firm for at least the first three quarters this financial year.

Two companies belonging to the Holcim group – Ambuja Cements and ACC – which together have a capacity of about 45 million tonnes feel that the planned capacity additions should have a dampening effect on prices.

Ambuja Cements’ annual report for 2008 (January to December financial year) says that “despite likely delays, or even cancellations, of some cement expansion projects, as financing has become very expensive and returns less attractive in the short-term, there will nevertheless be a period of surplus capacity.” This, according to the company, may be in the range of 40-50 million tonnes all-India by the end of 2010, “which could have some impact on cement pricing in affected markets.”

ACC’s annual report for 2008 (January-December) says that further capacity additions of approximately 46 million tonnes (by the industry) are expected in 2009. The additional capacity, coupled with slowing demand, will potentially bring down capacity utilisations in the country. Demand in 2009, it says, will largely be driven by the pass-through effect of the stimulus packages announced by the Government for housing and infrastructure sectors.

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