NEW DELHI: Cement prices will remain under pressure in the remaining period of the current fiscal due to subdued demand on the back of 54 million tonne capacity surplus, brokerage firm ICICI Securities said.
"We believe cement prices will remain under pressure in coming two to three quarters on account of around 54 million tonnes of capacity surplus across all region in FY'11," the brokerage firm said in a recent report.
The southern region is the most vulnerable region across India as it is expected to face 29 million tonnes of surplus in the fiscal, it added.
India's total installed cement capacity in FY'10 stood at 268 million tonnes as a result of 50 million tonnes capacity addition during the year. Going by the plans announced by the existing companies, this is set to go up to 299 million tonnes with the 31 million tonnes rise in capacity in FY'11, it said.
But, the effective cement capacity will be 269 million tonnes, 54 million tonnes higher than the requirement for both domestic consumption and exports.
Consumption, including exports during the year, is likely to be 215 million tonnes from 198 million tonnes a year ago, the brokerage firm said, adding that this would lead to a fall in capacity utilisation to 80 per cent from 87 per cent last year.
Another reason for prices to remain under pressure is the sluggish growth in demand. Traditionally, a lean period for construction work, monsoon proved a "double" dampener in the last three-month period for the cement firms as consumption grew by only 2-3 per cent.
ICICI Securities expect India's cement consumption growth is likely to slow down to nine per cent in FY'11 as against 12 per cent in FY'10.
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