The
cement industry has now been experiencing a threat called Excess capacity where
supply and demand are not in line. This problem of overcapacity has been
experienced by many other industries throughout the year and yet its continuing
to be tormented for many.
Fortunately
India's economy relies on the housing industry and in no way deceiving the
cement sector as demands for home are not going to fall, but expecting to have
a tremendous growth in coming years.. Also the infrastructure industry has been
on the rise, still the rate of consumption is not enough to slow down the
over-built capacity.
Manufacturing units are more than 5000
today. It has been tough times for many cement top players like ACC gave
negative returns of about 16 %, UltraTech gave about 7.5%, Ambuja gave about
19.6 %. Due to the political commotion, lack of export and reduced Oil prices
over the last few years were one of the main reason for the cement demand in
Middle East Countries.
What cause this excess capacity?
● Demand Constraints
● Poor Market Analysis
●
External Crisis
(Environmental or financial crisis)
●
Advanced Technology
●
Industry Dependencies
●
Sharing of market demand
among many firms
●
More Competition
Why
it is a considerable factor?
If a product can’t be sold above its
production cost, there are some challenges to be met like low profitability,
wage cut down and minimum realization for a product etc... And in other case if
a product can’t be sold, obviously all the production effort such as resources,
time, money etc gets wasted. Either way it is going to hurt the business which
in turn hurting the overall industry and economy.
Also
this industry forgetting another threat of excess and idle inventory. Suppose
if a plant is shutting down due to this excess capacity, all the industrialspare parts involved are remained to sit on the shelf selling for low
realization and scraping it. Idle inventory is not something that already lost
, but it brings more loss in future too like maintaining costs, liquidating
costs etc..
Managing excess/obsolete inventory is considered to be the great risk factor. A lot of old
stock are a notice sign that industry is in absolute loss. These are all the
results of poor management of products list, poor estimation, poor demand
estimation, over estimating etc.
