The domestic cement industry’s capacity utilisation is likely to moderate in FY20 to sub-70% levels, says ICRA Ratings.
The demand revival trend witnessed in recent months is likely to continue in the fourth quarter of FY20. However, sustainability of the same is critical to support the increase in prices, it added.
According to the rating agency, the cement demand growth is expected to remain flat in FY20 against the decade high growth of 13% witnessed in the previous year.
This growth along with expected higher capacity additions at 20-22 million tonnes per annum (MTPA) in FY20/FY21 (17 MTPA in FY19) is likely to result in moderation of industry’s capacity utilisation in the current fiscal.
“The incremental/new supplies are not fully integrated and most of it is backed by old limestone mining leases. Also, given that the grinding capacity addition is higher in relation to the clinker capacities for these new units, the actual production from new capacities could be lower,” said Anupama Reddy, assistant vice-president, ICRA Ratings.
“The eastern region is expected to lead the expansion and is likely to add around 15-19 MTPA during FY20-FY21. Increase in capacities with no commensurate increase in demand would result in a decline in utilisation rate to 68% in FY20 from 71% in the previous fiscal,” she added.
In the nine months of current fiscal, the production, at 247.4 million tonnes, was marginally higher by 0.7% compared with the corresponding year-ago period. The production has been increasing on an month-on-month basis from September 2019. A double-digit growth in cement demand of 11.8% was witnessed in December 2019, ICRA said.
At the pan-India level, the prices in most markets were higher in ten months of FY20 compared to the corresponding period of the previous year. In the Mumbai and Hyderabad markets, the prices were higher by 7-8% and in Delhi, around 20-25% was witnessed in December 2019. The prices witnessed some increase in the range of ₹5-20/bag across regions in January-February 2020.
“There has been some demand revival in November – December 2019 and as per our channel checks, the trend is likely to continue in Q4 FY20. The sustainability of this is critical to support the recent increase in the cement prices,” she said.