The 205Mt domestic cement industry which is haunted by a glut, has seen the lowest despatch growth rate in the last four years. During April-October 2008, the despatches’ growth stood at 6.27 per cent against 8.7 per cent during the same period last year. Last time when the growth had been so low was in FY05 when despatches grew 7.94 per cent during the first seven months.

Slowdown in the infrastructure and housing sector is having its impact on the cement industry which currently is adding around 30Mt of fresh capacity in FY09.

As per the latest statistics from the Cement Manufacturers’ Association, the despatch figures till October stood at 100.24Mt against 94.33Mt until October last year.

For instance, in October this year, industry witnessed a wide gap in production and despatches of close to 0.5Mt. Industry analysts said it was one of the widest gaps seen over the last five years. The overall inventory level has reached 1.64Mt which is one of the highest for the industry.

According to analysts, “If the difference in consumption and despatches remain for another one or two months, and inventory crosses 2.5Mt, cement makers, in line with the auto industry too would have to go for production cuts voluntarily.”

Cement as a commodity, which takes around 10-15 days in the supply chain from manufacturers to users, needs to be consumed within a month. Else, the quality of the building material deteriorates and is not usable.
 
Cement despatches in April-October0
Year     In mn tones     % Chg*
2003-04     66.08     4.74
2004-05     71.33     7.94
2005-06     78.44     9.97
2006-07     86.78     10.63
2007-08     94.33     8.7
2008-09     100.24     6.27
*Change over previous year
Source : Cement Manufacturers’ Association

So far there has not been voluntary production cuts by the industry. Though the capacity utilisation has dropped down to four year-lows of 82 per cent in the September quarter this year, it is attributable to fresh capacities being added.

During FY’05, the capacity utilisation for the industry on the capacity of 151.68Mt was 84 per cent which rose to 96 per cent during FY’08.

However, in the current financial year, with additions of around 7Mt of fresh capacity till October, the capacity utilisation has dropped to 85 per cent for the period April-October.