The industry is currently operating at 78 percent capacity utilization with the cement capacity of 59.43 million tons. Another 10-12 million tons will put this utilization—based on the current demand metrics—at 66 percent utilization—lowest since 2002. Though demand has seen an improvement in the north zone recently—growing by 11 percent in 5MFY20 year on year, demand in the south actually fell by 29 percent. Power cement’s clinker plant will go towards exports, which will keep clinker production utilization higher. Though, in terms of margins, clinker exports are a bit of a poor bargain (read more: “Cement exports: The wrath of competition”, Dec 18, 2019). Though for south players, this remains a solid backup plan.

Unfortunately for north players, they have fewer avenues in the exporting markets as traditional cross-border markets like India have stopped trade. The new plant addition also put a significant pressure on prices as companies are more likely to race to the market in order to sell off excess cement. Price wars are inevitable which might favor daily agents. After July, prices declined significantly across cities, started improving in October, and have started to decline once again as winter brings in the morose winds of lags and lethargy. Lack of demand with additional capacity is a recipe for disaster especially when other markets abroad remain out of reach. Evidently, seaborne exports are down 13 percent in 5M.

On average, cement prices in the Jul-Dec period this year are down between 5 and 15 percent in the north zone against the corresponding period of FY19. Mind you, price competition last year was also tough as demand during that year was also on a downslide. This together with the hiking up tariffs of utilities (gas prices will be up from Jan 1) and improving coal prices do not paint a pretty picture for profitability.