Cement capacity utilisation on a downward trend

The capacity utilisation in the Indian cement industry has fallen to 80% in November 2009 from a high of nearly 100% in March 2009. Analysts believe addition of new capacities and oversupply to be the main reasons for this downward trend

Addition of new capacities—coupled with oversupply—has resulted in a downturn in capacity utilisation in the cement industry. While temporary price hikes have eased the situation, the broader capacity utilisation scenario looks bleak for the industry.

Capacity utilisation in the cement industry has been declining since March 2009. As per data available on the monthly trend of capacity utilisation in the industry, the capacity utilisation in the industry has fallen to 80% in November from a high of nearly 100% in March 2009.

Overall capacity utilisation across the country declined to 77.2% in October 2009 from 84.6% a year ago. In the region-wise data available, capacity utilisation rates have fallen significantly in the southern and western regions for the month of October 2009.

In the southern region, capacity utilisation was 69.3% in October 2009, 17% less than 86.7% in October 2008. India Cements and Madras Cements are the among the cement companies who reported low capacity utilisation rates in October 2009. Similarly, capacity utilisation in the western region has fallen to 72.7% in October 2009 compared to 86.7% in October 2008.

A positive growth in capacity utilisation was witnessed only in the northern and central regions. It increased from 82.2% in October 2008 to 85.6% in October 2009 in the northern region. Similarly, capacity utilisation in the central region increased from 87.95% in October 2008 to 93.5% in October 2009.

Analysts attribute this downward trend in capacity utilisation to addition of new capacities and a pressure on the supply side. “The new capacity added is the first factor resulting in the decrease in capacity utilisation for various cement companies. Generally, new capacities in the first four to five months contribute only up to 50% of their total capacity. This is also because of the
oversupply situation, where the capacity is higher, but the demand is lower,” said Priyakant Dave, research analyst, Sharekhan Ltd.

However, Mr Dave pointed out that the oversupply situation has temporarily eased in certain regions due to a wagon shortage leading to a hike in prices.

“Cement manufacturers have reduced their operating capacity utilisation to maintain the demand-supply situation. It has helped reduce their inventories,” added Amit Srivastava, research analyst, Karvy Stock Broking Services Ltd.

“Companies like India Cements and Madras Cements are among the companies who witnessed reduced capacity utilisation. They have added a lot of new capacities in the past few months,” Mr Dave said. However, he pointed out that the volume of dispatches for these companies have also improved.

As per a research note by Emkay Research, capacity utilisation in the Indian cement industry is expected to fall to 80.5% in 2010 from 91.5% in 2009, showing a marginal improvement of 80.6% in 2011 and recovering to 87% in 2012.


No takers for gold being sold by banks

Investors, who bought gold from banks, are in a fix as leading jewellery houses are not ready to buy it and the yellow metal cannot be sold back to banks either

Investors, who bought gold from banks, are in a fix as leading jewellery houses are not ready to buy it and the yellow metal cannot be sold back to banks either.

"We are not allowed by the Reserve Bank of India (RBI) to buy back gold coins and bars sold by us," Amarjit Walia, assistant general manager, ICICI Bank, told PTI.

Banks cannot function as traders of commodities, including gold, RBI\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\'s chief general manager for communications, Alpana Killawala told PTI over the phone when asked about the reason behind the policy. She said, "Mere selling does not make a bank a trader. Trading encompasses both selling and buying. It is a sensitive issue, we are looking into it."

However, Mr Walia said, ICICI Bank may appeal to the RBI to review its policy to rescue investors. At present 23 banks are allowed by the RBI to import and retail gold.

Leading jewellery houses like PC Chandra and Sons and the Tata-run Tanishq chain, however, refuse to buy gold sold by banks.

A spokesman of PC Chandra & Sons said that it was a policy decision not to buy bank gold as "people can exchange such gold with our jewellery."

Alok Ranjan, regional business executive of Tanishq, a chain with country-wide presence said, "We cannot disturb our floating cash. Consumers may exchange the gold for jewellery, but in that case we deduct a substantial amount to neutralise our cost in melting gold and adding alloys like silver and copper to make it fit for making jewellery."

Anjali Jewellery director Ananya Chowdhury said, "Our position is the same as that of others. Moreover, we do not know whether the gold was genuinely procured or not. It is a security issue. We do not want to be dragged into legal hassles."

Usually, prices of gold sold by banks are higher than the market price. "We sell 24-carat Swiss gold," an official of HDFC Bank said.

The RBI spokesperson admitted that the central bank did not have any regulatory body to monitor prices.

Gold sold by banks cost around Rs2,000/10g more over the price sold by goldsmiths.

Bishnu Banerjee, a gold specialist of a leading jewellery house said, "Only Switzerland has the technology to purify raw gold up to 99.999%. It also has sophisticated weighing machines which can accurately measure the weight of gold."

The purity of Indian gold, he claimed, was far below that of Swiss gold and weighing machines here are also faulty.
Mr Banerjee said that banks in India were within their rights to charge more, but prices should not be that high. "Besides, all banks do not sell Swiss gold. Fixing higher prices for such gold (items) is a malpractice," he added.

A college teacher, Anirban Dutta said, "I want cash, not jewellery. How come I am refused when I have a bank certificate, income-tax returns and other required documents? It appears they do not want participation of banks in the gold market.”


Food inflation at 19.95%, RBI may hike rates

Food price inflation hovered around a decade's high of 19.95%, triggered by a short supply of essentials due to lower farm production, following drought and floods in various parts of the country during the year

Food inflation hovered around a decade's high of 19.95% as of 5th December, driven by costlier vegetables, pulses, milk, wheat and rice, even as economists said they expected the Reserve Bank of India (RBI) to hike rates to tame price rise, reports PTI.

On an annual basis, potato prices more than doubled at 136% and pulses became costlier by over 40%, while onion prices rose 15.4%. Other food items that became dearer include wheat (14%), milk (13.6%), rice (12.7%) and fruits (11%).

Food price inflation was triggered by a short supply of essentials owing to lower farm production following drought and floods in different parts of the country during the year.

The comprehensive wholesale price inflation, which includes manufactured products in addition to food and fuel items, soared to 4.78% in November from 1.34% in October.

"By the end of March 2010, it (inflation) could be close to 7%," prime minister's economic advisory council chairman C Rangarajan had said earlier this week. "We need to watch for behaviour of prices in December. Some action will be possibly taken by the RBI, which can have a moderating effect on inflation," said Mr Rangarajan, a former governor of the RBI.

The RBI, which keeps a close watch on inflation and growth, is slated to come out with its third quarterly review of monetary policy on 29 January 2010.

The RBI had earlier projected inflation towards the year-end at 5%, but later raised it to 6.5%.
Finance minister Pranab Mukherjee has also said that rising inflation was a matter of concern. "There is inflationary pressure, particularly in food items. Even wholesale prices have gone up substantially, (with) about 19% inflation in food (items)," the minister said.

Food inflation in the last week of November stood at 19.05%.

On a weekly basis, the spike in prices was significant with urad and spices rising by 3% while milk rose by 2%. At the same time, maize, barley, pork, masur and wheat were costlier by 1% each. However, the prices of poultry chicken declined by 10% and tea by 2%. Among the non-food articles, raw jute turned expensive by 11% and mustard seed by 4%.

The fuel index declined during the week due to lower prices of aviation turbine fuel.


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