Housing slump hits cement firms’ capacity utilisation

Housing slump hits cement firms’ capacity utilisation
Published: 17 September 2008

The Indian cement industry’ capacity utilisation is down by 8 per cent points to 86 per cent during the April-August period, according to latest data compiled by the Cement Manufacturers Association (CMA).

Addition of new capacities and a slackening consumption growth is prompting most companies to cut down utilisation to adjust supplies to demand.

The slowdown in housing sector as a result of high interest rates has impacted cement consumption demand. In July this year, Kumar Mangalam Birla, chairman of Aditya Birla Group, which owns two major cement companies, Grasim and Ultratech, scaled down the growth outlook for the Indian cement sector.

The industry has been expanding by about 10 per cent every year. This growth could now come down to about 8 per cent if the current recessionary trends persisted, he said. The country’ cement production in the April-August period stood at 72.38 million tonnes (MT), up 5.86 per cent from the corresponding period last year.

However, some players expect a brighter outlook.

“he basic demand from infrastructure is here to stay and we expect cement demand to remain buoyant. However, the slowdown in housing sector growth is a cause for concern. By and large, the macro prospects are bright,”aid Shailendra Chouksey, director, J K Lakshmi Cement.

The industry is faced with an unprecedented increase of 24 per cent year-on-year in the cost of principal inputs, including coal, power, fly-ash and gypsum. Moreover, it has not been able to pass on the entire cost-push to the market.

Government interventions like export ban (which was partially relaxed) and duty-free import has also spoilt the sentiment of cement investors.

Top players like ACC and Ambuja Cements have witnessed a pressure on their bottomlines for two consecutive quarters.

As new capacities get operational, cement prices may come under further pressure. According to CMA, the industry is likely to create an additional capacity of 32 MT in 2008-09, taking the total capacity close to 240 million tonnes.

“he industry has created new capacities ahead of demand. However, demand growth will take place in its own manner. The 86 per cent utilisation is a healthy figure. If we produce more than the demand, whom will we sell it to,”sked H M Bangur, president of CMA and managing director, Shree Cement.