Power and fuel constraints hit cement production

BL quoted manufacturers as saying that power supply and coal availability problems have hit cement production capacities and supply, which has helped keep prices stable. Though installed capacity has increased, consumption has matched the growth, contrary to expectations.

According to a leading manufacturer in the South, the power shortage in Tamil Nadu and Andhra Pradesh has impacted production from large and small mills. Particularly, mini cement plants, which do not have captive power facilities have been the worst affected. Industry estimates that at least about 3 million tonne of production has been lost due to the power shortage in recent months. Large mills that expected to have additional production capacity are yet to get power supply.

According to industry estimates, between April 2008 and January 2009, cement production capacity increased to about 16 million tonne a month from 14.8 million tonne. Cement consumption appears to have grown by about 8.2% during this period to match production growth. This has contributed to prices staying stable at about INR 225 a bag in Andhra Pradesh and INR 265 to INR 270 in Tamil Nadu and Kerala.

An official said cement consumption in South and Central zones is growing at about 10% and 10.5% while in the North the growth touched about 9% since January against 4.1% earlier. March is also doing well.

Mr S Sreekanth Reddy director of Sagar Cements said manufacturers are facing a power shortage of at least 25% grid power in Andhra Pradesh. Production is lost on 2 days of a week or one week in a month. There is no scope for improvement in supply at least up to the monsoons.

Mr Reddy said rural India is primarily contributing to the cement demand. The market difficulties of large real estate players had not impacted the industry because they account for less than 15% of the consumption.

According to Mr T Venkatesan CEO of Dalmia Cements, the industry is using costly imported coal for power and fuel which account for about 60% of the cement production cost. Due to domestic coal availability constraints, manufacturers had tied up in advance for imported coal at high costs ranging around USD 100 tonne to USD 150 tonne and they are yet to get the benefit of the drop in coal prices which ranges around USD 80 to USD 90 now. Though there is a growth in consumption, the demand scene is not great.

Mr Venkatesan said consumption growth in Tamil Nadu is down to about 7% to 8% now against 14% to 15% last year. The demand is poor in Bangalore. The pick up in the North could possibly be due to the absence of supplies from Pakistan. But the growth trend has helped to stabilize prices even in the backdrop of the general slowdown.




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