With overcapacity, declining demand and piling of inventory pushing cement prices down by US$5-10 a tonne in the cement exports market, domestic exporting players have found realisations are no longer remunerative.
According to them, overseas demand for cement may decline by around 20-30 per cent this year. In addition, prices of clinker — the first stage in the production of cement — has also taken a hit of around the same quantum.
West Asia and Sri Lanka are the main overseas markets for the domestic cement industry, with UltraTech and Ambuja Cements being the major exporters.
Ajay Kapur, head of marketing and commercial services at Ambuja Cements, said: “Demand in West
Asia and Sri Lanka had dropped, pushing prices down by US$10/t, making them unremunerative. Moreover, construction activities slowed down due to the festival of Ramadan, leading to a piling up of inventories.”
In the last three-four months, the realisation of cement in the overseas market came down from US$52 to US$44/t, Kapur added.
“Though export demand is low, it is not a worrying signal as most of the projects in the region have still not been completed,” said Vinod Juneja, managing director of Binani Cement.
UltraTech Cement, a part of the Aditya Birla group, also faced an erosion in realisation in the export markets. K C Birla, chief financial officer of the company, told Business Standard cement is currently ruling at $40 a tonne, whereas clinker is fetching US$37/tabroad.
The realisations are flat as export demand is less, an industry analyst said. However, she added, it will have little impact on the cement industry, as only 2.5-3.5Mt of the total production is exported.
In the first quarter of the current financial year, the country’s cement exports grew over 70 per cent, while clinker shipments went up by 67 per cent on a year-on-year basis.
According to Kapur, cement exports may see a decline of 20-30 per cent this year. He says exports from Pakistan to the overseas markets where Indian companies operate also had an impact on the prices.
In addition, the West Asian market, which comprises 12 countries — including Saudi Arabia, Iran, UAE, Iraq, Syria and Kuwait — is witnessing an expansion in cement capacity of over 110Mt. The region’s capacity in 2010 will stand at 213Mt, leaving nine countries in a surplus situation, except Iraq, Kuwait and Bahrain.
However, industry players maintained that volumes are not an issue if prices drop further. “We can easily divert the material to the domestic market,” said Kapur.