The cement industry is staring at a dead investment of Rs 55,000 crore in the near term owing to high idle capacity of about 100 million tones (MT).
The capacity utilisation in the cement industry has come down to a mere 70% as against 94% in 2007-08 because of supply and demand mismatch, according to data from the Cement Manufacturers' Association (CMA).
"The installed capacity stands at 380 MT per annum and the utilization is just about 275 MT. This extra capacity of 100-105 MT has cost about Rs 55,000-60,000 crore of investment," says Shailendra Chouksey, whole time director at JK Lakshmi Cement and vice president of CMA.
The slump in the real estate industry has not helped matters with the real estate industry accounting for about 15-20% of all cement demand in the country.
About 55-60% of the cement consumption comes form the retail segment, followed by real estate at 15-20%, infrastructure at 13-15% and the commercial, factories segment at 10-12%.
The demand by real estate players has gone down by 40% in the last three to four years, says Chouksey. The slowdown in the realty sector is coupled with weakness in rural demand and infrastructure development. Faced with the scenario, capacity addition is also expected to take a hit in the next few years. From about 25 MT of capacity added in 2013-14, new capacity additions will come down to 19 MT and 14 MT in 2015-16 and 2016-17, respectively, according to industry estimates.
"The capacity addition will go down as banks are not lending to cement companies as they know they will not get returns in such a scenario," says Anil Kumar Pillai, director and chief executive officer, JSW Cement.
Now the cement industry is looking towards major infrastructure and housing programmes of the government to provide succor.
To bring about major infrastructural development in the country, the government has just announced The Atal Mission for Rejuvenation and Urban Transformation (AMRUT) for 500 cities, Smart Cities Mission and approved spending of Rs 1 lakh crore for the two schemes. It also aims to build 2 crore houses by 2022 under the Housing for All initiative.
"The cement industry is likely to improve by second half (October) of the current fiscal on the back of huge infrastructure push by the government," says Pillai.
However, not all manufacturers are enthused with the efforts by the government on the infrastructure push.
"These programmes are good but the question is how and when would they be implemented. There has been no off-take of cement for highway construction so far," says Chouksey.
Transport Minister Nitin Gadkari, in January this year, had said that highways in the country would be constructed using cement instead of bitumen and even launched a website in March for cement procurement and delivery for the purpose.
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