Cement sector hit by excess capacity .

Mumbai, June 17 The sharp fall in demand on the back of excess capacity and onset of south-west monsoon may hamper the profitability of cement manufactures for the next few quarters.

The monthly cement dispatches reported by most leading cement manufacturers such as ACC, Ambuja Cement, UltraTech Cement and Grasim Industries has shown a steady fall when compared month-on-month in last two months.

Cement sales year-on-year also grew at a lower pace of 8.1 per cent in May as against 10.7 per cent in May last year. While the northern region clocked an impressive 14.4 per cent, the southern region grew 8.2 per cent largely due poor demand.

The eastern and central regions clocked marginal growth of 5.5 per cent and 2.1 per cent, respectively.

Mr Rupesh Sankhe, Research Analyst, Angel Securities, said, the poor demand in the southern region was largely due to slowdown in irrigation and housing projects undertaken by the Andhra Pradesh government.

“However, India Cements delivered a decent growth of 11.4 per cent in May aided by capacity addition carried out at its Parli facility in Maharashtra,” he said.

PRICES CRASH

Despite cement companies tightening their production to match the demand slowdown, cement prices continued to fall in May across the country with the southern region leading from the front.

The southern region registered the highest fall of Rs 20-45 a 50 kg bag with Andhra Pradesh registering a decline of Rs 30-45 to Rs 160 per bag. Sharp fall in cement prices in the western region was averted by a few consignments finding its way from the south.

However, it fell by around Rs 10-20 a bag. While prices in western region remained stable, it fell by Rs 5 in the eastern sector.

COST PRESSURE

The sharp fall in prices notwithstanding, the manufacturing cost seems to be escalating with every passing day.

Coal and gypsum prices have moved up substantially. Though cement companies are provided coal supply through linkages, most of them depend on imports.

Spot coal prices of the New Castle Mcloskey 6,700kc coal were up 56 per cent at $101 in May compared with the same period last year.

Mr A.L. Kapur, former Managing Director, Ambuja Cement, said, the current coal linkages are only about 45 per cent and the balance fuel has to be arranged through various options of either import or through e-auctions at very high prices.

The policy of allotment of coal blocks, to say the least, is too inadequate, besides being highly unsatisfactory, he added.

“It is a pity that despite cement industry's paltry needs of only 5 to 7 per cent of the total coal production, the Industry is not favoured with full linkage in the overall interest of National economy in general and of Cement industry in particular,” he said.

Source : Business Line