Excess supply within Indian markets?

Excess supply within Indian markets?
Published: 30 December 2010

2011 could be a challenging year for India’s cement manufacturers. Though demand for cement will reach higher double-digit growth, it will be insufficient to absorb the entire supply. Rising input prices and excess capacity (and resultant pricing pressures) will continue to depress margins for cement manufacturers – writes India’s Business Line.

A higher growth in despatches (versus seven per cent growth this year) will follow good housing demand and the Government’s thrust on infrastructure projects as the eleventh Five Year Plan comes to an end. With GDP growth estimates for 2011 coming at around 8.8 per cent, the cement industry can be expected to report a 10-11 per cent growth in consumption.

The incremental demand however won’t be adequate as the industry is adding close to 25Mt next year. In 2010, the industry reported an average utilisation rate of around 70 per cent after adding a total of 30Mt capacity.

India’s southern region, which experienced a drop in demand and increases in supply due to flows from newly added capacities, will see more capacity additions in the coming year. Bharathi Cement and Madras Cements will both be adding extra capacity during the year.

Cost pressure from rising prices of input materials will keep a check on the margins of manufacturers. From an average of around $70/tonne last year, global coal prices have reached $107/tonne. The new year will also see pressures from rising fuel prices and higher limestone and fly-ash cost.