The Hindu Business Line : Demand for cement seen softening

Mumbai, June 27 The hike in Cash Reserve Ratio and Repo Rate is likely to have a cascading effect on the cement industry, which is reeling under high input cost and Government measures keeping retail prices under check.

An expected slowdown in new housing and infrastructure projects due to rise in borrowing cost may soften demand for cement.

Mr A.L. Kapoor, Managing Director, Ambuja Cement, said the rise in cost of borrowing will shrink liquidity and push up working capital cost. The increase in interest rate may slowdown the housing sector and infrastructure projects and may soften the demand for cement in the short-term.

“With the Government trying to control prices and cost of operations going up, it will be a double blow,” he added.

Investments

Buoyed by the strong demand, increased capacity utilisation and highly remunerative price levels many companies have rolled out major capacity addition plans.

Installed capacity of the cement industry is expected to increase to 219 million tonnes per annum (mtpa) by financial year 2009 from 198.62 mtpa in the financial year 2008. It will further go up to 241 mtpa by the financial year 2010, according to an ICRA Industry Monitor report.

Mr H.M. Bangur, Managing Director of Shree Cement Ltd and President Cement Manufacturers’ Association, said some of the projects which were viable earlier have to be shunned. “If the RBI move is to control inflation, we hope it will be reversed once the objective is met in two to three months,” he added.

Among major investments, the Anil Dhirubhai Ambani Group’s (ADAG) Reliance Cement plans four cement plants of 5 mt each with a total investment of Rs 10,668 crore. Dalmia Cement (Bharat) Ltd to invest Rs 1,400 crore to more-than-double its capacity to 8 mt by March 2009.

Burnpur Cement plans to invest Rs 10,668 crore over 7-8 years to increase cement grinding capacity from 0.3 mtpa to 10 mtpa. Jaiprakash Associates will invest Rs 4,242 crore by 2009 to increase its cement capacity by more than three-fold to 25 mt.

Though most of the investments may have been tied-up, the company spreads the fund rising programme to take advantage of fluctuations in the interest rate, said an analyst.

Mr A.K. Saroagi, CFO, J.K. Cement, hopes the cement demand will be intact. If the Government can achieve the projected nine per cent Gross Domestic Product growth, then the demand for cement will be buoyant, he said.