The cement industry is in a peculiar situation. They are having almost 350MT of capacity. They are using only 220MT. Seen in a historic context, this is an alarming situation. Such a low capacity utilization should have led to the industry been in doldrums but somehow that has not happened.
Despite the low capacity utilization, they are adding capacity constantly - a truly unfathomable move especially by many players across the industry further adding pressure among them to keep cement prices high. In fact this low capacity utilizations, coupled with price hikes and new capacity additions itself may be proof that the industry is now working in an above board manner.
This phenomenon is causing high inflation in cement prices and waste of national capital. If one takes 85% to be a fair capacity utilization then the industry is carrying almost 100MT extra capacity. This means about Rs 70000 cr of bank loans are being wasted.
It is time the the government has a dialogue with the industry to make them understand that they are supposed to earn fair rate of return on assets at capacity utilizations of 80%+. Also since we have also enough capacity the RBI and Government of India should ban fresh loans to cement industry until the capacity utilization reaches 80%.
Despite the low capacity utilization, they are adding capacity constantly - a truly unfathomable move especially by many players across the industry further adding pressure among them to keep cement prices high. In fact this low capacity utilizations, coupled with price hikes and new capacity additions itself may be proof that the industry is now working in an above board manner.
This phenomenon is causing high inflation in cement prices and waste of national capital. If one takes 85% to be a fair capacity utilization then the industry is carrying almost 100MT extra capacity. This means about Rs 70000 cr of bank loans are being wasted.
It is time the the government has a dialogue with the industry to make them understand that they are supposed to earn fair rate of return on assets at capacity utilizations of 80%+. Also since we have also enough capacity the RBI and Government of India should ban fresh loans to cement industry until the capacity utilization reaches 80%.
With the new government in and clear signals going out that stalled projects will get speedy clearances, we may soon be hitting shortage situation, which is par for India.
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