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Cement industry in Andhra Pradesh has been pushed into a state of uncertainty in 2012 by price volatility, demand blues and power cuts.
The industry captains seem to be more worried about infrastructural bottlenecks such as power shortage rather than price volatility and demand blues which are inevitable.
“Power cuts in 2012 ruined the large cement industry,’’ K. Ravi, Managing Director, NCL Industries Ltd, told Business Line here.
“We wanted to deal with the problem by setting up a captive power plant for which we need water supply. There has been inordinate delays in clearing files which hit the industry hard,’’ the chief of Hyderabad-based company said.
In all industry forums, the State Government insisted that power-cuts were only ‘temporary’ but nothing was being done to solve the problem.
For cement companies, the future seems to be bleak as far as power supply is concerned.
“The reason for delays in approval for captive power plants are said to be the controversy about alleged favours India Cements had received in return of investment in firms belonging to Kadapa M.P Y.S. Jaganmohan Reddy. How far it is correct to punish the entire industry for this,’’ questioned a top official of a cement firm in the State.
Crippling effect
The severe power cuts, especially since summer, with the worst case scenario of nearly 14 days power holiday, had a crippling effect on some of the smaller companies.
This resulted in some resorting to lower production. In the case of newer companies, they had to buy at a higher tariff of up to Rs 14/unit, which was a big burden.
DIP IN DEMAND
Apart from the power cuts, the industry was adversely impacted by dip in demand. “Actually, there was decline in despatches from Andhra Pradesh in 2012 compared to last year,’’ S.V.S. Shetty, Chief Executive Officer, Anjani Portland Cement Ltd, told Business Line.
Though the exact figures are yet to come, industry experts say that the decline could be 5-7 per cent compared with last year.
The main factors for the dip in demand were the almost total absence of Government projects Indiramma Housing and Jalayagnam (irrigation-related) and slowdown in realty.
The Government demand, at about four to five lakh tonnes a month, earlier was nearly 25 per cent of the total demand in the State.
Though demand has been picking up from slow revival in residential segment that is offset by the entry of new players including majors such as Jaypee Cements, JSW Cements, Jaya Jyoti and KCP.
The big bang announcements at the CII-destination AP event in January this year with total investments to the tune of Rs 5.67 lakh crore, including huge infrastructure, energy and petrochemical projects promised big hopes for the over 45 companies that operate in the State.
However, most projects remained on paper at the end of the year, dashing business strategies of the cement companies.
“The general capacity utilisation in the industry this year in the State is only 60-65 per cent,” Shetty said.
Price volatility
The price volatility noticed throughout the year has been another concern. If price for a bag of 50 kg hit the roof at nearly Rs 300, they also plummeted to a low of around Rs 200.
During July-October, prices freely slid southwards as supply far outstripped demand. The normal slowdown in construction during monsoon along with few projects in infra and realty brought no cheer for the cement industry. This resulted in prices crashing to a low of nearly Rs 200-210/bag for smaller companies and brands, while bigger companies held the price a bit higher.
The Centre's decision to increase the price of diesel came in handy to the companies to reverse the fall and push up prices during October-November, when they reached the Rs 280 level again.
However, December and the year-end have brought no cheer to a struggling sector, which saw a boom during 2000-2009 and steady growth for the next couple of years.
The only silver-lining are the elections slated for 2014. Next year, election compulsions would pep up Government demand providing relief to the industry in the State, hope industry players.
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