Cement Industry: Problem of Excess Capacity

According to CMIE (Centre for Monitoring Indian Economy), Cement industry is expected to increase its capacity by 30 million tones, reaching total capacity of around 276 million tones by March 2010. This will be the highest capacity addition in any single year. Given the current consumption levels of 178 million tones, expansion in capacity will put the pressure on the already plummeting cement prices.

Manufacturers have been cutting cement prices since September to ensure proper capacity utilization. The industry has been consolidating and the top five manufacturers now control around 60% of the entire production. The remaining capacity continues to be largely fragmented, primarily because cement is highly freight intensive and costly to be transported over large distance.

While the industry experienced a 10% growth in 2009, excess supply due to large capacity addition coupled with curtailed exports to Middle East and South East Asian Nations, the rate of growth can be expected to boil down.

Despite these challenges, industry experts opine that cement industry can be conservatively expected to grow 8% to 9% next year on the back of Government initiatives towards boosting the infrastructure and housing sector. Housing and Infrastructure sectors consume around 55% and 35$ of India’s cement output respectively and will now act as a major driver of growth for cement industry.