INDIA: Cement firms to raise capacity by 20 million tonnes in 2014

The cement industry may continue to see testing times for the better half of the year with fresh capacity of 20 million tonnes (mt) going on stream, taking the industry capacity to 370 mt.

Among major additions, UltraTech Cement is expected to add 8-10 mt, while Shree Cement and JK Lakshmi Cement will put up 6 mt and 4 mt over the next fiscal. Though cement demand is expected to recover, companies may lose pricing power as competition intensifies to push additional capacity into the market. Profitability may remain stressed with rising input costs. The rupee depreciation against the dollar may make coal imports costlier. A. Srinivas, research analyst at Angel Broking, expects the cement industry to remain in the woods next year.

Contrary to market expectation, there was no major revival in demand in the December quarter. The profitability of cement companies had deteriorated as sales in the quarter rose 6 per cent year-on-year (down 8 per cent quarter-on-quarter), while prices dipped 7 per cent (down 3 per cent quarter-on-quarter).

Rajesh Kumar Ravi, research analyst at Karvy Stock Broking, said infrastructure project execution has been declining continuously and projects are being shelved at an alarming rate in the last two years. Cement demand may pick up in the second half of 2014 which may again depend on timely and good South-West monsoon, said Ravi. “We expect overall cement sales to be driven by higher demand from rural regions and tier-II and tier-III cities. This along-with an expected recovery in infrastructure project execution should boost demand.”The average all-India cement prices declined 5 per cent across regions to Rs 289 for a 50-kg bag in the December quarter against Rs 304 a bag in November. Prices in the western region (Maharashtra, Gujarat and Goa), considered the biggest market for cement, declined the most by Rs 20 a bag to Rs 293, while it was down by Rs 9 to Rs 274 a bag in the central region (Uttar Pradesh and Madhya Pradesh).

In the southern region, prices were down by Rs 17 to Rs 316 a bag. In the northern and eastern zones, cement prices declined by Rs 13 and Rs 15 to Rs 269 and Rs 295 a bag, respectively.

Cement demand in the eastern and northern regions was hit by the ongoing sand mining problems, which are expected to be resolved soon. However, prices are expected to be revised higher in the second half of January as demand revives from a few Government projects, which are expected to be rolled out before the code of conduct for next general election kicks in.