The cement industry, already reeling from an oversupply situation, is expected to add 23.3 million tonnes of capacity in 2011-12 with the southern region accounting for a lion's share of 9.2 million tonnes.

The East is next with 4.1 mt while the north will see 3.7 million tonnes being added. The western and central regions are not too far behind with 3.3 mt and 3 mt each, say industry sources.

Lacklustre demand

This fiscal, cement companies have added 24 mt till October with another 20.9 mt scheduled to be wrapped up by the end of this fiscal. In the process, the cement capacity in India will be 301.6 mt, up from 257 mt in 2009-10. The downside, though, is that demand has been lacklustre in the last few months, especially from the housing sector.

Mr Sanjeev Kumar Singh, Research Analyst, Centrum Broking, said the glut would keep the utilisation rate and pricing power of cement makers under pressure. “Companies may find it difficult to pass on the rise in operational cost due to expensive raw materials to end-users which will eventually lead to deterioration in margins and return ratios,” he added.

The industry's capacity utilisation currently hovers around 78 per cent, down from 87 per cent last fiscal. It may fall to 77 per cent in 2011-12. Factoring in the moderate 5 per cent increase in sales in the first half coupled with the average GDP growth estimate of 7.5 per cent in the next two years, the demand for cement may at best rise to about 9.5 per cent, said a company official.

Slowdown in housing

The fall in demand during the last few months has largely been due to the slowdown in the housing sector which accounts for about 65 per cent of cement consumption. Real estate companies had to go slow on projects as bank borrowings have turned costly.

Demand for cement from sectors such as road, railways, ports and power projects is expected to improve with the Centre planning to invest about Rs 4,60,000 crore ($1 trillion) in the Twelfth Plan (2012-17).

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