Indian capacity expansion rate to slow

Indian capacity expansion rate to slow
Published: 05 July 2013

Tagged Under: Capacity India 

Faced with overcapacity, the Indian cement industry is likely to slow expansion with an extra 66Mt expected by 2015-16 amidst an expected surge in demand and price, Care Research said.

"Over the past few years, cement industry has witnessed huge capacity addition. The capacity has increased from 219Mt in FY09 to 325Mt in FY13, registering a CAGR of 10.4 per cent," said Care Research, a unit of Care Rating.

Given the huge surplus prevailing in the industry, the pace of capacity building would decelerate going ahead, it said, adding that cement makers would add capacity of about 66Mt during the period of FY14-16.

"On account of huge capacity addition, the utilisation rate of the industry dropped from the peak of 93 per cent in FY07 to 73 per cent in 2012-13. Going forward, it will improve gradually given the slowdown in pace of capacity addition and gradual recovery in cement demand. The overall operating rate of the industry to increase to 76 per cent in FY16," it said.

The demand would improve on government's increased focus on strengthening infrastructure, the promotion of affordable housing, lowering trend of interest rates and expected revival in the overall economic growth, according to Care Research.

"Given the recovery expected in demand, cement prices are expected to remain elevated in FY14. However, the per tonne total expenditure of the industry is expected to rise by about 10 per cent on a year-on-year (YoY) basis, due to increase in power and fuel and freight costs," the research house said.

Power, fuel and freight costs are major cost components of the cement industry. In FY13, these together had accounted for about 55 per cent of the total cost. Per tonne power and fuel costs of the industry will increase by about 10 per cent on a YoY basis in F14 as international coal prices expected to remain stable and not soften further during the current fiscal.  Again, the per tonne freight cost of the industry would go up by about 15 per cent on a YoY basis in FY14 due to a hike in diesel prices.