India: cement makers start shutting down plants

India: cement makers start shutting down plants
Published: 05 January 2009

Faced with an oversupply and low utilisation levels, Indian producers have started shutting down their plants in the north.

ACC, the country’s biggest cement manufacturer, had announced the closure of one of its two clinker kilns at Gagal, Himachal Pradesh for 15 days with effect from December 16 as excess stock of clinker had been piling up since August.

The plant had to be reopened on January 1, 2009, but it has not started operations yet and is unlikely to do so anytime soon, a company source said.

The source said ACC is contemplating closure of the second kiln, too.

Another player which has had to shut a plant is Shree Cement, which mainly caters to the northern and central markets.

H M Bangur, managing director, Shree Cement told DNA Money that the company has had to shut one unit for the last 20 days. "Somebody has to close as utilisation has fallen by 15%. Sales are absolutely not there," he said.

Lack of demand in the north has forced the company to transport its produce to Mumbai, he said, adding, "Our margins have come down and we do not expect any revival in demand this year." Bangur, who is also the president of Cement Manufacturers’ Association, said more plants would have to be shut down if sales in the region did not revive soon.

A major reason for the glut in the northern region is the cement imported from Pakistan, which is cheaper than the local produce. The oversupply situation is set to get worse with as much as 7Mt is set to make its way into India and the Middle East, say industry sources.

The industry saw one of its worst months in terms of sales and dispatches in September. The situation improved somewhat in October and November, although analysts aren’t too excited about the apparent improvement in demand.

Pritesh Vinay and sandeep Pandya from Goldman Sachs wrote in their report dated December 15, "Our channel checks indicate that demand has worsened considerably since November, and we believe producers may be dumping stock onto bulk consumers on favourable payment terms. The 11% dispatch growth reported by the industry in November was likely driven by this reason, in our view, and is therefore not sustainable."

The situation isn’t too bright in the other regions either, say dealers. Going by them, cement manufacturers in the east and north have also given huge credits to developers, which they are unable to recover.