‘Weak environment to prevail for cement makers’

Cement makers’ continuous poor show may last till next fiscal due to oversupply and rising input costs, according to rating agency Crisil.

“We expect a weakening operating environment to prevail till the end of 2011—12 for cement producers on account of large capacity build up and the rising trend in input costs,” the rating agency said in a recent report.

Continuing with the squeezed margin for the last so many quarters, all major cement makers’ bottom line shrunk in the third quarter of current fiscal. They found the genesis of the prolonged bad runs to the sector’s persistent demand-supply imbalance.

The cement industry, as a whole, utilised 80 per cent of the 260—mtpa capacity last year.

“As capacity additions will exceed incremental demand, operating rates were expected to remain below 80 per cent over the next few quarters, resulting in reduced flexibility to raise prices and pass on input costs,” Crisil said.

India’s cement capacity is likely to be raised by around 70 million tonnes in two years ending 2011—12. Demand, though, grew by only 4—5 per cent during the first nine months of the current fiscal, compared to 10—11 per cent in the corresponding period last fiscal.

Another rating agency Fitch had earlier said that India’s supply—demand mismatch would likely to go up to 107.7 million tonnes in FY12, with supply reaching to 348.1 million tonnes.

Indicating that 2012—13 fiscal may also not bring any respite for the cement makers, Fitch had said that the gap was likely to widen further to 125.8 million tonnes during the year as demand would be 267 million tonnes.

Fitch had said that it expects around 10 per cent demand growth and over 12 per cent capacity addition in 2011. The supply—demand mismatch may result into pricing and margin pressures for most of the cement companies.

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