Mumbai: Domestic cement industry of 197-million tonne is likely to touch double digit growth from the next fiscal with demand surpassing even the 57- mt capacity addition expected by FY 2014, says an industry report.

The Rs 77,800-crore (as of March, 2010) domestic cement market, already one of the fastest growing ones globally and the second largest among the emerging markets after China-- is on course to a double-digit growth path, it says.

“From FY13, the domestic demand is expected to exceed supply... From FY12 through FY14, the domestic cement industry will add at least 54 mt new capacity,” says Ernst & Young India partner Nitin Gupta in a report titled ‘Cementing India.’

But he notes that this additional 57 mt capacity is unlikely to be absorbed by domestic demand this fiscal and it sees capacity utilization level remaining at around 80 per cent during this fiscal.

However, the report adds that from FY13 onwards demand will surpass supply and this higher demand is expected to continue in the medium to long-term.

The report hopes on two factors mainly- the very low per capita intake and the massive USD 1-trillion infrastructure push being given by the government over the next five years.

“Although India is one of the largest cement markets in the world, per capita consumption is still low compared to the global average as well as that of other large markets like China and the US.

“Moreover, the country lags significantly behind China on the infrastructure front and can register an unprecedented growth in infrastructure in future. This is a clear indicator that the industry has huge growth potential and is on course to witness double-digit growth in the coming years,” he says.

“These improvements have resulted in the share of the top three players in total capacity increasing from 37 percent in FY00 to a high 47 percent in FY10, while their capacity nearly rising threefold-- from 42 million tonne to 114 million tonne during this period,” says Gupta.

A key factor is consolidation that has resulted in substantial reorganization of capacities, says the report.

“This consolidation has not only inculcated an enhanced supply discipline in the industry, but has also made it difficult for producers to only compete on prices anymore,” says the report.

According to report, global players have been taking keen interest in the domestic market for the past few years. Accordingly most global majors are present here on Thursday and contribute over 20 percent of the domestic capacity.

Companies have found out a way to overcome this raw material problem through mergers and acquisitions for capacity expansion, notes the report.

 Another enabling major development is setting up of captive power plants by manufactures, due to the increasing power outages by the state electricity boards, notes the E&Y report.

“At the national level, as much as 64 percent of cement produced in FY10 was through captive power, compared to 18.1 percent in 1992-93, an increase of 45.3 percent in 2000-01,” says the report.

Coal being an important ingredient for cement production, coal-sourcing arrangement has evolved over a period of time, notes the report and adds that as government collieries have been failing to meet the demand, cement companies are now looking for mine acquisition in India and abroad to meet this gap.

On the global side, the report says that the share of emerging markets has been continuously growing in cement production and consumption over the past few years.

“Emerging markets have become the largest producers and consumers of cement with their share in global consumption increasing from 72 per cent in 1990 to almost 90 per cent in 2010, driven by favorable demographics, rising urbanization and increasing demand for housing and infrastructure,” says the report.

This has seen China emerging as the largest cement consumer in the world, followed by India, which is also the fastest growing among the

Agencies