Cement, Energy and Environment

CEMENT FIRMS PLAN TO GROW CAPACITY TO MEET POTENTIAL SPURT IN DEMAND With the new government announcing plans for dedicated freight corridors and 100 "smart cities", cement makers are anticipating robust demand and have planned huge capacity expansion in north India. These companies include Jaypee Cement, JK Cement Ltd, Mangalam Cement Ltd , Birla Corporation Ltd, Ambuja Cements Ltd, Shree Cement Ltd, UltraTech Cement Ltd and India Cements Ltd. However, any further expansion in the region will have to be done by way of consol idation, experts say, as limestone reserves are limited in the north and cost of transporting limestone from the south are high. In a way, the consol idation has already begun with firms scouting for cement assets . "As far as our expansion plans go," Madhavkrishna Singhania, special executive at JK Cements, said, "the same will be on stream by September 2014. There are some opportunities that we are currently exploring for new mining leases and are open to acquiring existing plants as well, provided we come across the right opportunity and valuation. "Singhania said the firm is bull ish about demand growth for cement in north Ind ia on the back of the smart cities and dedicated freight corridors announced by the government. Ambuja has announced a capacity addition of approximately 4.50 million tonnes (mt). Its greenfield proj ects will be set up in Rajasthan , Madhya Pradesh and Uttar Pradesh. The total expansion cost is estimated at Rs. 3,500 crore, the company said in its annual report. Courtesy : The Mint, Mumbai, 21.07. 2014 Pg. No. 7 CLEARING STALLED PROJECTS WILL BOOST DEMAND The cement sector wi ll be the first to bounce back if the positive business sentiment attributed to the Modi Government turns into real growth in GDP. Cement companies have long been pressured by rising input cost and fall ing demand. Infrastructure projects, which account for about 60 per cent of total cement demand, have been stuck .or want of clearances and funding. Anticipating a sharp rise in -demand, cement companies had enhanced production capacity to about 360 million tonnes from 340 million tonnes in the last three years. Unfortunately, demand in this period failed to keep pace with the capacity addition due to economic slowdown and the government's policy paralysis . With large scale capacity addition and low demand, the cement industry capacity utilization has averaged at about 70-75 per cent last fiscal. Companies had to cut capacity utilization to maintain price levels and pass on the incremental cost overrun due to hike in power and fuel costs. Traditionally, the rate of growth in demand for cement is 1.2-1.3 times that of the GDP. Interestingly, in the last few years, demand has lagged behind GDP growth because the GOP was largely driven by the agriculture sector and not manufacturing or infrastructure activities. Changing government focus While GOP growth was about five to six per cent in last two years, cement demand grew at just three to four per cent. The industry is expecting pent-up demand to materialize as the new Government focuses on infrastructure projects . The Government has planned a two-pronged strategy to deal with infrastructure projects stuck at the last mile. It has asked ministries connected with giving approvals for infrastructure projects to expedite clearances. The Finance Ministry has been asked to smoothen the process of accessing capital for projects. The Finance Min istry is also working to ensure that all payments due to private companies are released and all stalled proj ects are revived . This thrust on infrastructure will help cement firms stuck in debt's quagmire. Prime Minister Narendra Modi's stated policy of 'minimum government, maximum governance' has instilled new confidence in investors. Oaljeet S Kohl i, Head of Research, lndiaNivesh Research, said more that than financial concessions, cement companies will benefi t from a revival in the investment cycle. The key challenge of low demand and rising costs has made cement companies more efficient. Once demand starts picking up, companies would turn around fast, he said. Even if the Government does no given in to all of the industry's demands in this Budget, just a 12