AP’s 2 million tonne bonanza for cement units

R Balaji Chennai | Updated on January 24, 2018 Published on June 18, 2015


Firms facing huge capacity overhang with demand drop post bifurcation of Andhra Pradesh

Cement companies with factories in Andhra Pradesh will get a shot in the arm as the State Government plans to procure more than two million tonnes of cement this year for its infrastructure and social development projects.

The move will benefit large players such as India Cements, Ramco Cements, Dalmia Cements, My Home Cements and Bharathi Cements as also a number of small outfits. The dozen cement manufacturers with 22 plants in Andhra Pradesh have a total installed capacity of 53 million tonnes a year. In 2014-15, these units worked at just about half their capacity and produced 27 million tonnes. According to official estimates, the State government will need over 2.2 million tonnes of cement in 2015-16. This will be procured only from local manufacturers. The major demand will be for irrigation projects, which will take about 1.5 million tonnes; housing 3,00,000 tonnes; local administration 2,38,000 tonnes; and roads 2,19,000 tonnes.

The State has pegged the ex-factory price for cement it plans to procure based on the grade and location of the unit. The price ranges from about ₹170 a bag to ₹205 excluding taxes, duties and freight charges; according to industry sources, this is competitive and comparable to the market rate.

AV Dharmakrishnan, Chief Executive Officer, Ramco Cements, said this is good news for manufacturers in Andhra Pradesh as this programme clearly charts out additional demand for cement.

Booster dose

The State’s move comes as a big boost for the cement industry which has been suffering from poor sales for a while now. According to industry sources, the composite Andhra Pradesh State was the biggest driver of cement demand in the South. At its peak, composite AP’s demand equalled that of Tamil Nadu and Karnataka combined.

In recent years, the demand has fallen due to various reasons, starting with the death of YS Rajasekhara Reddy, which stalled numerous infrastructure projects.

Then came the bifurcation, which also affected project implementation.

From 10 million tonnes a year in 2003-04, cement consumption in Andhra Pradesh more than doubled to 22 million tonnes in 2008-09 but fell to 15 million tonnes in 2014-15.

Manufacturers had quadrupled capacities to about 90 million tonnes, but the demand slump has created a huge capacity over hang.

Cement manufacturers are hoping that the new State of Telangana will also kick off an exercise like AP.

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Published on June 18, 2015
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