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One-third of cement capacity lying idle here’s what it says about housing, infra slowdown
Financial Express  |  July 27, 2019

Samrat Sharma

One-third of India’s cement making capacity is unutilised, and has been left idle, underlining the recent trend of slowing activity in the housing sector and infrastructure development. The capacity utilisation of cement industry in India is low, and 170 MT out of 510 MT is completely idle, according to the Department of Industrial Policy and Promotion (DIPP) annual report released this week. Housing and real estate sector is the largest consumer of cement in India, followed by infrastructure and industrial development sectors.


Implementation of RERA disturbed the stability in construction activity, which led the real estate developers to keep away from launching new projects in the first half of the previous fiscal years, according to a report on cement industry by Care Ratings released last year. This led to a slowdown in the demand of cement, the Care report said. However, an inefficient transportation system is one other reason for the under-utilisation of cement plants.


Transport worries


“Cement industry is a logistic-intensive sector and the inefficient logistics has also contributed to the idle capacity of the plants,” said Ashish Nainan, Research Analyst, Care Ratings to Financial Express Online. He added that around one-third of the cement plants are based out in the southern region where demand is not enough to utilise the installed capacity, and transporting it to the northern part of the country is not cost-efficient. Cement plants have to be located near the limestone plants as higher logistics have resulted in the inefficiency of many cement plants in the past, some of which have already gone bankrupt, Ashish Nainan said.


Cement plants with smaller capacity often find it difficult to arrange rakes and wagons to transport cement. Being a bulk commodity, it is quite uneconomical to transport cement over long distances. This makes cement a product of local sales. India is the second-largest producer of cement after China. Three most common cement types produced in India are Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC) and Portland Slag Cement (PSC).


With the expectation of rising in the housing segment and higher infrastructure spending, cement demand in India is estimated to cross 550 MT per year in the next five years. Also, according to a sector analysis report, the growth is expected by looking at the per capita cement consumption in India, which is less than 200 kg in India, compared to over 1,000 kg in China and 500 kg as the global average.