Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday

Lack of equipment stops cement firms on expansion track

Lack of equipment stops cement firms on expansion track
Comment E-mail Print Share
First Published: Thu, Feb 15 2007. 12 55 AM IST
Updated: Thu, Feb 15 2007. 12 55 AM IST
Aggressive plans to expand India’s cement capacity and meet the booming construction demand has run into an unexpected problem: there just isn’t enough equipment to build factories.
Manish Saxena, a Deutsche Bank analyst estimated in a recent report that annual orders with cement equipment suppliers have gone up from 75 million to 100 million tonnes last year, while average orders in prior years hovered around 30 million tonnes.
“Indian producers were late to place orders,” the report said.
Meanwhile, the order-books of equipment suppliers had a back-log for deliveries stretching through the first half of 2009 even before some Indian producers started ordering new equipment.
The consequences of this equipment supply bottleneck could mean that cement demand will continue to outpace supplies with prices remaining firm for several years, say industry watchers.
Indian cement companies were hoping to boost capacity by about 45% by 2009.
Ranking second behind China, India’s cement industry has an installed capacity of 160 million tonnes. The expansion projects estimated that aggregate new capacity of around 70-75 million tonnes will go on stream by fiscal 2009.
Demand for cement in India, which was at about 132 million tonnes in 2006, is slated to grow at 10% annually, for the next three years.
“The vendors are all over-booked,” says Sanjeev Baffna, joint president and deputy CFO of Grasim Industries Ltd, which plans to add around 10 million tonnes to increase its capacity to 24 million tonnes. “It is difficult for them to meet the demand from the cement manufacturers. Those who had booked last year will get it on time, but there will be delays in orders placed later.”
ACC, India’s largest cement manufacturer, is increasing its capacity from 19MT to 24MT over the next two years, Gujarat Ambuja Cement Ltd is hiking its capacity from 16MT to 22MT.
Aditya Birla Group cement company Ultratech is adding another 4.5MT to its present capacity of 17MT.
It is unclear which specific cement companies would be impacted because of this tight equipment supply situation.
“In the normal conditions, equipment suppliers take 12-18 months time for delivering the machinery and equipment. But in this boom, where everyone is going for expansion of capacities, it is taking not less than 24-28 months," said R. Gopalakrishnan, company secretary of Hyderabad-based Deccan Cements.
A typical cement plant has four key units: raw mill, coal mill, cement mill and kiln, all of which are driven by a big gearbox.
While equipment suppliers such as FL Smidth, Humboldt Wedag, Walchandnagar Industries, Fuller, Lurgi, Onida, and Sinoma supply complete plants, fewer companies supply gearboxes.
Citing a full order book, Humboldt Wedag India said lead times have gone up significantly. “New projects are likely to be more affected by the delays in procurement,” said H.N. Chabra, a general manager at the second-largest cement equipment maker in India. The bottleneck in supplies will continue for up to three years, P.C. Bhagavath, senior general manager of marketing at Walchandnagar Industries said.
Some manufacturers are suggesting that cement companies should consider Chinese suppliers as an option to try and speed up supply of equipment and key parts.
Comment E-mail Print Share
First Published: Thu, Feb 15 2007. 12 55 AM IST
More Topics: Money Matters | Commodities |