For the first time in four years, November-end inventories in the Indian cement industry (cement plus clinker) have fallen below the 6Mt level, according to a research by Motilal Oswal. At 5.93Mt, the inventories take care of just 17 days consumption compared with 7.05Mt in November last year. This is significant because the March and June quarters are the two best periods for the industry.
If inventories are down before a period of high consumption, it could result in a shortage in some regions, which could lead to higher prices. The lower inventories have resulted from double-digit growth in offtake in the last three months which has taken the capacity utilisation to 82 per cent. Capacity utilisation has been going up post monsoon with the uptick in despatches and since August it has been at he highest level in the last five years. Analysts now expect utilisation to touch 100 per cent by March.
Demand for cement is set to grow between 6 per cent and 7 per cent over two years, driven by the housing and infrastructure. This augurs well for the industry, especially given the high utilisation levels currently. Also, there is virtually no capacity coming on stream for at least 12 months so the supply could remain at just over 117Mt. The demand-supply gap might be bridged and manufacturers might soon get better realisations.