The cement industry in southern India will find it difficult to sustain their operations with the current prices...
The cement industry in southern India will find it difficult to sustain their operations with the current prices due to the rising inputs cost, according to N Srinivasan, vice-chairman and managing director, India Cemnts, a leading producer in the region.
Countering allegations against the cement makers by the builders’ forum and others, he said, “Unless volume goes up with a renewed government infra spending, the companies in this region will come under the margin pressure.”
“At a 55-60% utilisation of the total 155 million tonne capacity in South India, coupled with a nil growth over a period of time, the cement makers will see margin erosion unless the price goes beyond R400 a bag,” he said, adding, “the cost of cement per sq ft is only half the cost of a bag compared to a sq ft cost which runs into several thousands.”
Addressing presspersons to clear air on builders’ allegations on rising per bag price, Srinivasan said, “The cement industry is fractured. It has created huge capacity ahead of demand with 360 million tonne at the all-India level with 100 million tonne lying idle. In southern markets alone, the capacity is pegged at 155 million tonne with 45 producers and with an idle capacity of nearly 70 to 75 million tonne, or 55% capacity utilisation. The companies cannot produce more due to the nil growth as well lack of storage facilities in this region.”
Andhra Pradesh, the largest among southern markets, saw a sharp decline in consumption — from a high of 24 lakh tonne a month a few years ago to 12 lakh tonne now, which has been the level for the last two to three years.
Srinivasan said at the current price of R375 for a 50 kg bag, the equity return for the producer is just 12%.
“For a manufacturing and capital intensive industry like cement, the interest rate should be on the global lines in single digit,” he pointed out.