While the government has succeeded in forcing a freeze on cement prices for one year effective from March 9, the demand-supply gap in cement, which is driving up prices, is likely to continue for another two years. Moreover, there is a possibility of some capacity additions getting stretched beyond schedule.
This gap will have a bearing on prices once the freeze period comes to an end. Most of the 80 million tonne capacity addition that has been announced will come only in the fiscal 2009-10 or 2010-11.
The domestic cement industry has a capacity of 165Mt, but at 90 per cent operating capacity they produce nearly 150Mt.
“Demand for cement is growing at 9 per cent (following the GDP growth) and there is little possibility of it slowing down. While the industry has announced capacity addition of about 80Mt, only around 60Mt is likely to get added by 2010. It will take another couple of years before the demand-supply imbalance is corrected,” said H M Bangur, vice-president, Cement Manufacturers’ Association, and chairman and managing director of Shree Cements.
The capacity additions may get delayed as some of the players do not have licences, while others may fall short of time due to delay in delivery of machines, added Bangur.
According to the Cement Manufacturers’ Association, demand is likely to reach 240Mt by 2010. “It is only from the year 2009 onwards that most new capacities will become operational,” said Rahul Kumar, COO, Jaiprakash Associates.