The 261-million tonne cement industry, which added 16 million tonnes capacity in April, is expected to witness pricing pressure in the near term. With 10 million tonnes capacity addition, yet to be reported, the increased capacity during April resulted in decline in cement capacity utilisation by 470 basis points (bps) 84.7% year-on-year .
J Radhakrishnan, an analyst with IIFL, said: ?As capacity increase outpaced demand growth, capacity utilisation in the Central, West, South and North regions declined 10.8 percentage points (pps), 6.4 pps, 5.7 pps and 5.6 pps, respectively. However, the eastern region?s utilisation increased 4.2 pps on account of low addition.?
Reacting to increased supplies from new plants and other factors, cement prices have already declined Rs 5-20 per 50 kg bag across the country in the past one month.
UltraTech Cement and India Cement have seen realisations dip in the fourth quarter as prices have falen in the southern region.
At the time of Q4 results, UltraTech had said: ?Significant capacity addition during the last fiscal year with the possible addition of around 30 mtpa in the year ending March 2011 may lead to a surplus scenario. Capacity utilisation is expected to be around 80% and these factors are likely to put pressure on prices.?
New entrants such as JK Cement in the south and Jaiprakash Associates in Gujarat are selling at higher discounts as their plants are ramping up. Jaiprakash recently kicked off production at its 2.4 mtpa cement plant in Sewagram, Gujarat. JK Cement commissioned its 3 million tonne plant in Karnataka in September 2009. Experts say it takes about 8-9 months for a plant to stabilise production.
?Interactions with dealers indicate that growth is likely to marginally improve in May as infrastructure spending in Bihar and UP has picked up,? says Radhakrishnan.