The demand growth for cement is expected to outpace the supply growth in 2015-16. The demand growth of the commodity (6.5% to 8%) would outpace supply additions (6.7%) and the capacity utilisation, which was around 71% in FY14, is likely to improve to 73%- 75% in the next fiscal as was last seen in FY11, said India Ratings & Research on Thursday.
The southern region of India, with a significant oversupply, is likely to maintain a supply discipline between FY14-FY16 with a capacity addition of just 7 million tonne per annum over this period (5% of its last fiscal’s estimated installed capacity). This shall improve cement capacity utilisation in this region to 61%-63% in the coming fiscal from 56% in the previous fiscal.
The central region of the country is likely to add 5 million tonne per annum during FY14-FY16 (11% of its previous fiscal’s installed capacity) and consequently improve capacity utilisation to around 85% from the current level of 81%. Similarly, the capacity utilisation in northern region is likely to increase to 80%-81% in the coming fiscal from 78% in FY14 as the region adds 13 million tonne per annum (16% of its FY14 installed capacity).
It is expected that the capacity utilisation of cement companies to improve across all regions barring eastern India. The companies in the east are adding around 17 million tonne per annum (31% of its existing installed capacity) during FY14-FY16 and thus supply growth in this region will likely outpace demand growth which in return reduce capacity utilisation in the region to around 70%-71% from 75% in the previous fiscal.
The companies in the western region are adding 10 million tonne per annum (18% of the existing capacity) during FY14-FY16 and thus the capacity utilisation in this region is expected to remain stable at the current level of 73%.