Financial Daily from THE HINDU group of publications
Tuesday, Oct 08, 2002
Industry & Economy
Solid gains seen for cement cos
HYDERABAD, Oct. 7
THE domestic cement industry is anticipating a major shift in fortunes from the fiscal 2004-05 onwards when demand is expected to outstrip the level of supplies.
According to the industry estimates, a slower capacity addition would take place over the next three years not more than 15 million tonnes in view of weak prices and poor profits. This is expected to lead to a deficit of cement in the country.
While the domestic demand during the last fiscal stood at 90 m.t., the supplies amounted to 90.3 m.t., resulting in a net surplus of 0.3 m.t. The net surplus is expected to remain in the same range during the current fiscal also. However, the demand was expected to be in the range of 97.2 m.t. and supplies at 97.5 m.t. during 2002-03.
According to the estimates, the situation is likely to become more critical during the next fiscal year, where the net surplus was estimated to grow significantly to 1.7 m.t. The demand is likely to be in the range of 106 m.t. and supplies at 107.7 m.t. during 2003-04, according to the management of Lanco Industries Ltd, the Hyderabad-based Portland slag cement manufacturer.
However, the fortunes of the industry were expected to turn during 2004-05, when the domestic demand would be in the range of 115.5 m.t. whereas the supplies would be limited to 112.5 m.t., a deficit of three m.t. after a long gap, Lanco said in the management discussion and analysis attached to its latest balance sheet.
Compared to a negative growth of one per cent during 2000-01, the domestic cement industry registered a growth of 8.5 per cent during the last fiscal. The industry produced 99.9 m.t. during the last fiscal compared to 93.52 m.t. in the previous year. This growth was mainly attributed to the stronger Government focus on housing and infrastructure, normal monsoon, positive credit cycle and higher disposable incomes.
At present, the country has 120 large cement plants owned by 57 companies. As on March 31, 2002, the total installed capacity for cement manufacturers stood at 134 m.t., a growth of 16.52 per cent over the previous fiscal.
As freight charges accounts for nearly 30 per cent of the delivered cost of cement, the manufacturers have been attempting to maximise their sales in the regions close to the plants.
Though cement is sold within regional markets, a glut in one region has been adversely affecting the price economies in the adjacent markets.
The industry expects the demand to rise in the near future with the economy showing signs of recovery and the Government's thrust on infrastructure. However, the incremental capacity addition and flushing of cement from one cluster to another in an attempt to dispose of the surplus output was expected to turn into a threat to the industry.This is because the additional supplies of cement would dampen the prices.
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