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Muted demand, overcapacity to plague cement industry by 123wert sdfsf
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Muted demand, overcapacity to plague cement industry |
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Business,Business News,Business Opportunities
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The Indian cement industry has experienced subdued demand growthand declining operating rates over the past two years. In 2012-13as well, operating rates are expected to remain under pressure. For an industry characterised by high growth from 2005-06 to2009-10, clocking a muted demand growth of 4 per cent year-on-yearin 2010-11 was a jolt. A prolonged monsoon and subdued off-take ofcement for construction activity weighed on demand during the year.However, there was better traction in 2011-12 in cement demand,which grew by 6.6 per cent year-on-year. While demand growthremained healthy across the north, west, east, and central India,sluggish demand in the south proved a drag on pan-India cementconsumption.
Bogged down by political issues, especially in AndhraPradesh, which is a key cement-consuming state, demand growth inthe south remained negative for most part of the year. Plagued by overcapacity Along with muted demand, the industry is plagued by overcapacity.At present, the industry is in the midst of an investment cycle— almost 63 million tonnes of cement capacity has come onstream over the past two years. A significant proportion of theseadditions, almost 23 million tonnes, has been commissioned in thesouthern region alone. Subdued demand coupled withhigher-than-commensurate capacity additions has dragged downpan-India cement operating rates from 85 per cent in 2009-10 toalmost 74 per cent in 2011-12.
Operating rates have been theweakest in the South, at sub-65 per cent levels during the year. Prices resilient Despite demand growth and operating rates following a downwardtrajectory, cement prices demonstrated strong resilience in2011-12. While the pan-India average cement price remained almoststable year-on-year in 2010-11, it spiralled by around 14 per centyear-on-year in 2011-12. This growth was largely supported by thesteep price rise in the south, to the tune of 23 per centyear-on-year, primarily led by supply constraints in the region.Ironically, despite clocking the lowest operating rate compared toall the other regions, the price increase seen in the south was thehighest among all the other regions. This sharp rise in pan-Indiaprices has helped protect the profitability of cement players andoffset the downside arising from escalation in power and fuel andfreight costs.
Industry operating margins were stable at around 19per cent in 2011-12. In 2012-13, subdued demand along with excess capacities is likelyto lead to capacity utilisation falling further. Crisil Research expects pan-India cement demand to grow by almost 8per cent year-on-year in 2012-13. This growth is likely to bespearheaded by demand emanating from the west and the east,especially from the housing and infrastructure projects in urbanareas. Moreover, demand growth in the south is likely to revivegradually over the year.
On the supply front, Crisil Research expects almost 25 milliontonnes of pan-India cement capacity to get commissioned in 2012-13.Of these additions, a lion's share (almost 9 million tonnes) is setto be commissioned in the south, followed by the east (around 7million tonnes). In view of the prevalent supply glut and thesizable quantum of cement capacities set to come on stream in2012-13, Crisil Research estimates pan-India operating rates tobottom out around 72 per cent in 2012-13. Notable capacityadditions in the south and the east in 2012-13 could lead to loweroperating rates in these two regions, pulling down the pan-Indiacapacity utilisation. In 2012-13, Crisil Research estimates theoperating rate to hover around 60 per cent in the southern regionand around 67 per cent in the eastern region. Crisil Research estimates the pan-India cement price to remainalmost stable in 2012-13.
While cement prices across most regionsare estimated to remain flat during the period, prices in the northare likely to increase by around 4-6 per cent year-on-year. Owing to the considerable distance between the regions, the northis expected to remain fairly insulated from the excess cementsupply emanating from the south and the east. Hence, prices areexpected to rise much more in the North, compared to other regions.On the profitability front, stable realisations combined with anincrease in energy costs could lead to a marginal decline inindustry operating margins, to almost 17 per cent in 2012-13. The author is Director, Crisil Research, a division of Crisil. I am Luggage, Bags & Cases writer, reports some information about customized grocery bags , childrens lunch boxes.
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