Cement producers to face weak operating environment in 2011-12: CRISIL

New Delhi : CRISIL expects additional cement capacities of around 70 million tonnes to come on stream in 2010- 11 and 2011-12. However, demand growth has been lagging: demand grew by only 4-5% during the nine months ended December 31, 2010, as against around 10-11% during the corresponding period of the previous year. As capacity additions will exceed incremental demand, operating rates are expected to remain below 80% over the next few quarters, resulting in reduced flexibility to raise prices and pass on input costs, which have shown a rising trend.

Large CRISIL-rated players have reported a 23% rise in power, fuel, and freight costs for the quarter ended December 31, 2010. CRISIL’s portfolio of large cement companies accounts for around 44% of cement capacity as on date. These rated players enjoy not only robust business risk profiles, but also exhibit very strong financial risk profiles, marked by low gearing levels and healthy liquidity.