The cement industry in India is looking at a dead investment amounting to INR 55,000 crore in the short term owing to idle capacity of approximately 100 million tons.
The capacity utilization in the Indian cement industry has been brought down to 70 per cent compared to the 94 per cent back in 2007-08. Data revealed by the Cement Manufacturers’ Association blames the demand and supply mismatch for this drop.
Shailendra Chouksey, vice president of the Cement Manufacturers’ Association and whole time director at JK Lakshmi Cement said that the installed capacity of the cement industry in India is pegged at 380 million tons per annum while the utilization is only around 275 million tons. This surplus capacity of 100-105 million tons per annum is costing the country around INR 55,000 crore to INR 60,000 crore of investment.
The slump in the real estate market has made matters worse since the real estate industry accounts for approximately 15 per cent to 20 per cent of the total demand for cement in the country.
An estimated 55 per cent to 60 per cent of the cement consumption stems from the retail sector, which is followed by 15 per cent to 20 per cent from the real estate industry, 13 per cent to 15 per cent coming from infrastructure, and 10 per cent to 12 per cent from the commercial and factories segment.
Shailendra Chouksey says that the demand from players within the real estate sector has slipped by 40 per cent over the past three to four years. This can be attributed to the weakness in infrastructure development and rural demand and the slowdown in the realty sector. Capacity addition is also likely to bear the brunt over the coming years. Industry estimates state that new capacity additions are likely to drop to 19 million tons in 2015-16 and 14 million tons in 2016-17, from around 25 million tons in 2013-14.