Scancem had earlier agreed to pick up a crucial 25 per cent in Narmada Cements, and part-fund plans to double cement output to 3 million tonnes. With the new development, Scancem has terminated the earlier commitment to pump in equity in Narmada Cements.

In a release issued on Monday, Narmada Cement said: "On review of the present cement market scenario in Asia and India, the managements of Scancem and Narmada Cement have decided not to set up new line of 1.5 million tonnes capacity."

The Chowgule-managed company has cited the cement glut in Asia as the reason for the break-up. Narmada Cement has been among the few domestic cement companies with a foreign equity stake, and the break up has come as a setback for its expansion plans.

Industry sources said the parting of ways was prompted by the fact that Scancem had goneback on its commitment to lift cement from Narmada Cement, as ruling international prices had fallen far below the contracted price."The ongoing financial crisis in Asia has adversely affected the global markets and resulted in excess capacity in the Asian cement market. The market conditions for cement in India are not very conducive in view of adverse supply and demand equations," the release added.

The release, however, added that Asia would continue to remain an important `strategic area' for Scancem, although the current market conditions do not `justify continuation of the project at this time.'

The domestic cement sector has for long been witnessing a lopsided growth, with producers coming up with new capacity additions far higher than the domestic demand thus leading to sharply lower price realisation for cement companies. Cement capacity addition was 4.3 million tonnes in 1997-98 thus hiking cumulative capacity level to over 100 million tonnes. Cement production increased by 9.6 per cent to 76.7million tonnes and cement and clinker exports crossed the four million tonnes mark.