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Cartelisation possibility unlikely as cement makers fight excess capacity

January 01: Excess capacity in some parts and lower-than-expected demand continues to affect overall capacity utilisation of cement manufacturers in India, thereby effectively ruling out the possibility of cartelisation of any sort, cement industry sources said.

The Competition Commission of India (CCI) had in 2012 June found cement manufacturers violating the provisions of the Competition Act, 2002 which deals with anticompetitive agreements including cartels.

It had passed an order on June 20, 2012 pursuant to the investigation carried out by the Director General upon information filed by the Builders Association of India.

The Commission had in the first round imposed penalty on 11 cement manufacturers at the rate of 0.5 times their profit for the year 2009-10 and 2010-11. The penalty amount so worked out amounted to more than Rs 6,000 crore. The Commission had also imposed penalty on the Cement Manufacturers Association.

The cement manufacturers upon whom the penalty was imposed in the first round were ACC, Ambuja Cements Limited, Ultratech Cements, Grasim Cements (now merged with Ultratech Cements), JK Cements, India Cements, Madras Cements, Century Cements, Binani Cements, Lafarge India and Jaypee Cements.

In the second round, penalties were imposed on some other cement manufacturers, including Shree Cement.

India’s cement production capacity is estimated at around 330 million tons annually, whereas actual production is somewhere around 275 million tons annually.

“The demand for cement in the country has not grown the way it was projected and because of this there is excess capacity available at present. Most of plants are operating at around 60-70% capacity utilisation because of the low demand,” the sources said.

“There cannot be any understanding among the manufacturers as the capacity is much more than demand. No plant will agree to operate at say 50% capacity utilisation to keep prices firm. By doing so they will not be able to even recover their variable expenditure because of increase in cost incurred on expanding capacity,” they added.

“The companies have taken huge amount of loans in most of the cases to set up their plants and if they do not produce and sell even at a low margin, they will not be able to serve the debt. So no matter what the market price of cement is, the possibility of production cut is not much,” they said.

“Today, the plants in northern and western India are operating at about 75-80% capacity utilisation, while those in south India are operating at around 50-60% capacity utilisation. The capacity utilisation in eastern and central India is estimated at 60-70%,” an official of a leading cement maker said.

“The capacity utilisation is less in south India, because a lot of new plants have come up during the past 3-4 years. Not many new plants have come up in eastern India, but there is no demand in this region as well,” he said.