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Overcapacity continues to affect cement industry

World Cement,

Addressing shareholders at the company’s annual general meeting, Chairman Kumar Mangalam Birla said, “We will see excess of supply (cement) for the next two-three years and prices are likely to remain subdued unless we have catch-up in demand with capacity.”

Last year, the oversupply situation was anticipated by many industry experts to continue for 18 – 24 months. Considering the decade’s worst demand in 2010-11 and analysts’ expectations of a repeat of the same in this financial year, it is a signal that the cement industry’s long wait to see a dawn may get prolonged.

“The overcapacity continues to plague the industry,” said Birla.

The domestic cement industry, second largest in the world after China’s, has added 100 million t of fresh capacity over the last two years.

A Mumbai-based analyst noted, “We expect the oversupply situation to easily prevail till the first quarter of 2013-14,” adding cement players would attempt to curtail capacity utilisation to ensure less supply to the market.

For this financial year, demand was expected to be 228 million t, while capacity would be 291 million t. “There will be an excess of 63 million t of capacity in 2011-12,” Birla concluded.

Though the last two years saw rapid capacity addition, Birla anticipated it would slow down in the coming years.

“There will be an addition of 100 million t in the next five years,” he said. UltraTech has an 18% market share. Its capacity stands at 52 million t, which will increase to 61 million t by the June quarter of 2013-14.

In 2010, Ultratech joined with Samruddhi Cement and is now the country's second biggest cement manufacturer and ninth largest global player. The cement manufacturing giant is planning to spend Rs.11 000 crore over the next three years to expand its major projects. The company plans to reach an overall capacity of 75 million t. Birla said the company was exploring both organic and inorganic routes to strengthen its position in India. “Over the long term, the cement sector is likely to grow in excess of 8.5%,” he said. On the Bombay Stock Exchange, UltraTech shares closed at Rs.1087.70, down 2.47%.

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