Moderate growth in project investment in Cement & Steel

Shashikant Hegde

In the prevailing economic distress, when most industries have recorded severe fall in production and turnover, cement and steel industries have been exceptions. In recent months both sectors have reported increases in production and sales.

Although private construction activities have almost come to a standstill across the country, increased state spending on infrastructure building like roadways, bridges, water supply systems, and transmission and distribution have kept these two vital industries ticking.

Cement
As of March 2009, there were 243 cement projects entailing a total investment of Rs 84,800 crore. These projects have a combined capacity of around 180 million tpa.

Although 10 projects were shelved during the second half of 2008-09, the cement sector saw the least number of such cancellations. However, most of the large players did admit that they will be going slow on their capacity building plans.

At present, the total capacity is at around 218 million tpa. Going by the project completion dates announced by the promoters, fiscal 2009-10 should see capacity additions of around 50 million tpa. However, because of the cautious approach adopted by the promoters, ProjectsToday expects new capacity additions in the region of around 30 million tpa during 2009-10.

Steel
Unlike cement, the steel industry may not be able to sustain the current increase in demand for a very long period. Fall in demand in overseas markets and slowdown in the pace of investment in domestic sectors like automobile, electricity and construction sectors as a whole would deter most of the steel producers from expanding capacities in the near future. 

The second half of 2008-09 saw the shelving of around 45 steel projects worth Rs 97,219 crore. Companies with mega investment plans like Tata Steel and Mittals have already pared down their investment size. The Posco project in Orissa has not shown any signs of progress either.

As of March 2009, there were 756 steel projects (primary as well as secondary steel projects) entailing a total investment of Rs 3,87,400 crore. Bulk of the investment is spread across three iron-ore rich states—Orissa, Jharkhand and West Bengal.

Outlook
The expected capacity additions of around 30 million tpa during the current fiscal and moderate growth in the pace of project investment would see a considerable fall in the capacity utilisation ratio in the cement industry. Currently, the industry enjoys around 100 per cent capacity utilisation. Hence, most of the large players have expressed cautious optimism about the outlook for the industry in the near future. On the contrary, most of the major steel producers do not expect the demand for steel to increase much during the next two-three years. 

In the coming months, while we may see the announcement of some new projects in the cement sector, not many new investment plans are expected to emanate from the steel sector.

Published in Project monitor issue date 27 April 2009