“Our analysis suggests that while capacity utilisation in the south remains weak, capacity addition in the region would be strong over the next two years. Additionally, the east, which was reeling under severe pricing pressure till about three months ago, is also likely to witness supply influx,” an analyst with Motilal Oswal said.
Shree Cement, which is eyeing a 40 mt per annum (mtpa) capacity in the next five years is leading the pack with its 2 mtpa projects in West Bengal and Odisha each, a 2.8 mtpa brownfield project in Chattisgarh and another over 2 mtpa project in Karnataka. Emami cement, the latest entrant, will be adding 5.5 mtpa capacity in Chattisgarh with two other projects in West Bengal and Odisha. Ultratech Cement will be setting up a 3.5 mtpa plant in Dhar in Madhya Pradesh. Southern players like Penna Cement, Sagar Cement, KCP Industries and others are also likely to come up with capacity additions as well.
“Capacity additions in cement beyond FY 2018 are expected to slow down further, given the lack of quality limestone resources,” Avneet Kaur, assistant vice president at ICRA Limited told Business Standard.
According to Kaur, the recent period witnessed a considerable slowdown in cement demand due to delays in infrastructure projects on account of issues pertaining to land acquisition, delays in securing the requisite approvals and problems in achieving financial closure.
According to Rajesh Kumar Ravi, research analyst with Centrum Broking, the cement firms had anticipated forthcoming demand during 2008-2010 based on which they had opted to up their production capacity.
“However, the demand didn’t grow as expected and thus capacity utilisations are on the lower side. Under the present circumstances, there is actually no need to go for greenfield projects,” he told this newspaper.
Capacity addition had peaked in 2011, when the cement firms added 45 mt of organic capacity.
While the Centre as well as brokerage firms expected the segment to grow by 10 per cent, the actual growth rate in the last few years had been between 5-7 per cent which Ravi expects to go up marginally to 7-8 per cent in the forthcoming fiscal year.
As per the brokerage firm, capacity additions in south and east India is unlikely to affect cement prices owing to south India’s “strong pricing discipline” and the robust demand in east India.
“Slowdown in the pace of fresh capacity additions is expected to support cement prices going forward,” Kaur added.