With the cement industry going through a rough phase now, what do the industry's bigwigs have to say? We spoke to Mr Jayanta Dattagupta, Chief Commercial Officer, ACC, to get his perspective on the surplus supply scenario in the industry and the challenges ahead in the current year.

Excerpts from the interview:

Despatches growth in the industry has slowed down in 2010. How will consumption be in the current year? What do you think will be the drivers to demand?

I expect consumption growth to be over 10 per cent in the current year. Good monsoon, which will show its effect with a lag, and infrastructure spending by the Government will be the main drivers to demand.

Surplus supply has been a major issue in the industry; its impact on prices is visible clearly now. Do you think the industry will slow down capacity creation at least from the next year to let prices improve?

The per capita cement consumption is only around 200 kg in India. This is expected to grow to over 300 kg in the next few years with infrastructure development and housing demand.

But all large and medium-size players would like to secure their future and participate in the growth the industry is to witness. We do not think there will be any slowdown in capacity creation in near future.

Which is the most lucrative market within India for a cement player currently, in terms of demand and price realisation?

The most rewarding market I would say is the East. The Central and North regions are also doing well. All pockets of the country are much better off than the South.

All key inputs used by cement manufacturers have seen increase in cost. How is the industry adjusting to the rising cost scenario?

Rising costs are an issue the industry will have to battle with this year.

We are working to improve efficiency levels at the plant and focussing on reducing cost of goods sold by bringing efficiency in handling input materials and reducing transportation and energy cost.

What are the major issues faced by the industry currently?

Going ahead, the demand for cement will grow strongly and this is likely to create pressure on the availability of natural resources such as limestone, coal, gypsum etc.

In the present scenario, however, short supply of railway wagons in the peak construction season, abnormally high taxes and duties and insufficient availability of linkage to coal are the major issues.

With prices rising suddenly in the southern market, we hear that builders are importing cement. Is this added supply going to further spoil the demand-supply balance in the region?

I do not view this as a threat for the domestic players.

How much time would it take for the demand-supply situation to get favourable for cement manufacturers?

It may take at least two-to-three years for demand-supply balance to give players an encouraging field to play.

In the coming budget, what will be the industry's key expectations?

We will ask for a 55 per cent abatement on MRP-based excise duty. We also hope to get some reduction in royalty on limestone.

Do you see more of M&A and consolidation deals happening in the industry?

I don't see it happening in the immediate future. Acquisition cost is much higher than replacement cost currently.

What is the industry's current average capacity utilisation rate? Does fall in utilisation rates also squeeze margins for producers?

The capacity utilisation rate stands at around 80 per cent now. Industries located at higher capacity utilisation zones are not affected.

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