The 234 million tonne per annum (mtpa) Indian cement industry, which witnessed a double digit despatch growth in December 2009 and an overall growth thanks to infrastructure and real estate projects, is set to add 43.2 mtpa capacity during the next 15 months (January 2010 to March 2011).
South India, which has already started feeling the heat of oversupply, will add the maximum capacity of 17.6 million tonne during that period. The next in line is the northern region, which will add 9.6 mt. The western, central and eastern regions will add 9 mt, 3 mt and 4 mt, respectively.
The industry, which is growing at the rate of 8-10%, is currently witnessing price hike in the southern and western regions. Industry sources say with small producers increasing capacity multifold and new players entering the southern and western markets, pricing discipline is tough to emerge.
Adesh Gupta, CFO of Grasim Industries, while announcing the company?s Q2 results had said, ?With new capacities coming on stream in the second half, margins are expected to be under pressure along with pressure on prices.?
?The southern market with 18 players having capacity of 1mtpa or more is the most fragmented one in India. Capacities of three new players (Raghuram Cement, Jayajyothi and JSW Cement with more than 2 mtpa each) will stabilise in the next 6-9 months. With sharp price cuts, new producers may find it difficult to break even, and this would likely to prompt some consolidation. All the three new producers are unlikely to participate in consolidation,? J Radhakrishnan, analyst with IIFL, said in his report.
Industry sources say medium-term price recovery in the south is unlikely without consolidation. However, there could be delays in the announced capacities due to slowdown that hit the industry last year. Moreover, the on-stream supplies will be absorbed by increased demand from the infrastructure and construction sectors, say players.
?No new capacities are expected to come on stream for the next six months, and hence, we don?t see any significant threat of oversupply in the southern markets,? said a Dalmia Cement spokesperson.
The top cement players who are adding up capacity include ACC Ltd, Grasim, Ambuja Cements and Lafarge.