Southern cement units may suffer due to over-capacity and low demand

As per the figures available on capacity addition for cement, cement units in the southern region will add the highest capacity in 2010 and 2011. India Cements, Dalmia Cement and Madras Cement are the key players in the southern region. All over India, 47.5 million tonne (MT) of cement capacity is expected to be added in 2010 and 19.2MT by 2011. Out of this, the southern region is expected to add around 20MT in the year 2010. For the year 2011, the highest capacity addition of 7.8MT will happen in the eastern region.
 
In the best case scenario assuming delay in capacity addition, the total capacity for the south is expected to grow by 26.9% from 66.1MT in FY09 to 83.9MT in FY10.
 
Industry watchers expect the cement demand for the south to be 56.6MT for 2010. This means a serious demand shortfall of 26.5MT. Similarly, the capacity for FY11 is expected to be 96.5MT and expected demand is 63.4MT, which again implies a serious demand shortfall of 33.1MT.
 
The cement industry in the southern region satisfies around 96% of its own consumption needs and routes the remaining produce primarily to the western region and marginally to the eastern region.
 
The capacity utilisation or operating rates for the cement industry in southern India too are not favourable. As per CRISIL Research reports, the operating rates for the cement industry all over India, is expected to fall from 88% in 2008-2009 to 77% to 2010–2011. The southern and northern regions are expected to suffer a steep fall in operating rates of below 75%.
 
Unless demand for cement goes up drastically, the southern region may be plagued by overcapacity for years. Around 45% of the total capacity addition in the next five years is expected to happen in the southern region.
 
Stock prices for Dalmia Cement witnessed a gain of 44% at a current price of Rs184.55, India Cement recorded a gain of 3% at current price of Rs134.50. Madras cement witnessed a gain of 19% at the current price of Rs121.20 over the past three months. In the same period, the Moneylife Cement Index went up by 14%.
–Amritha Pillay [email protected]

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