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Will cement capacity utilisation rise in Q4?

March 04: After reeling under pressure in entire third quarter due to extension of monsoon, better days appear to be back for Indian cement makers, industry sources said.

But many in the industry feel that this will be a short term phenomenon as companies in core sector generally witness a higher demand in fourth quarter of any financial year.

“You will see that capacity utilisation and production of cement and steel goes up sharply during fourth quarter. Part of this is due to increase in demand and another part is the compulsion by these sectors to show better financial results that sometime drives them to produce more and show higher revenue in books,” a senior official of a leading cement company said.

“The capacity utilisation of a large number of cement makers in India had dipped to a low of around 50% in Q3 (October-December), but situation is now looking better as average capacity utilisation has gone up,” said another official of a cement company.

Echoing the sentiment, another official of another cement company said that capacity utilisation was slightly better in North India at around 65% in February, but in rest of the India, the situation is still not that encouraging.

“Our capacity utilisation in January rose to 85% in January and further to nearly 100% in February. We hope to operate at 100% capacity utilisation in March as well,” an official of Shree Cement Ltd, which has plants in Rajasthan said.

“Our lowest capacity utilisation was 75% in October and November even as September was much better considering that it was monsoon period and historically the capacity utilisation in monsoon is much lower,” the official said.

But beyond March, the Shree Cement official was not in an mood to predict. “Let us see how demand moves after March, because by then the entire country will be in election mood.”

India’s cement production capacity is estimated at about 370 million tons per annum whereas going by the current rate of capacity utilisation, the actual production is likely to be in the range of 290-300 million tons, said a third official.

However, an official of UltraTech Ltd said that while capacity utilisation in North India has improved, the rest of the India is still under pressure and as such average capacity utilisation by cement makers of India is only around 55%.

“I do not see any spurt in demand at least till November-December,” the official said.

Explaining the reason, he said, “India is right now in election mode and any big decision that is related to infrastructure is unlikely to be taken by the government during this period. The election results will be out only towards end of May and new government will be in place. It will take around two months for any new government to stabilise and by then monsoon will come that will last till September-October. So in true sense any spurt in demand, if at all it comes, will come only in November-December.”