• APRIL 6, 2000

Cement sector to benefit from supply ‘shortage’

Forward to FY2002 and the Indian cement sector is probably facing a peculiar situation in which many industries would like to be in – demand exceeds supply (or thereabouts). The latest demand and supply figures for FY00 only indicate that the future scenario is more likely than not to turn out.

During FY00, cement production increased by 15% to 94.0 million tonnes. Demand on the other hand grew by a marginally less 14.7% to 93.8 million tonnes. The capacity of the sector has been estimated at 109 million tonnes during the year, implying utilisation level of 86% (according to some estimates, capacity utilisation at larger plants was as high as 97% towards the close of the year). With capacity growing at under 5% per annum while demand continues to grow at 12-14%, capacity constraints are likely to spring up in the near future (year 2002).

Yet the situation is a not so great one. Why?

Cement prices have continued to exhibit a mixed trend largely due to sporadic government spending on infrastructure and intense competition in the industry. However, with investment activity in the manufacturing sector picking up and the housing sector continuing to grow at a rapid pace, cement prices are already showing signs of buoyancy. Then there is the likelihood that spending on infrastructure will finally come through.

The cement sector does offer interesting investment opportunities. However, with the dot.com fever still on (or not?) and expectations of 100% rise in topline running high, cement companies have been relegated to the corners of market activity.

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