B. OPPORTUNITIES AND THREAT

CEMENT

Aided by the growing emphasis on infrastructure development and house building, the Indian cement industry is experiencing an annual demand growth of over 10%. Responding to market dynamics, cement manufacturers on their part are making optimum capacity utilization. Moreover, in order to meet the future demand for cement, the industry has embarked on massive capacity expansion of 110 million tonnes in next seven years, through both Brownfield and Greenfield routes. Cement demand will be largely triggered by the proposed Rs. 150,000 crore investment earmarked for infrastructure development in the current 11th five year plan (2007-2012). Capacity expansion that the cement industry is envisaging will call for massive capital expenditure as the investment cost for a Greenfield plant now is as much as Rs 5,500 a tonne. In the circumstances, it is only natural that the capacity of existing units will be optimally expanded taking advantage of the available infrastructure and logistical back up. While the industry is showing dynamism to create large new capacity, the supply of coal and its rising prices remain points of grave concern. Coal is an important input in cement making and it accounts for up to 20% of total cost of production. The industry uses both domestic and imported coal. As for domestic coal, not only it became expensive due to royalty revision and a hike in pithead prices of all grades but the Ministry of Coal has reduced coal linkages to cement units. Last year saw the prices of imported coal rising well over 100%. What also is of concern to the industry is the continuing fall in the quality of domestic coal. This has implications for cement productivity and cost. Besides the growing pressure on cost, the industry will have to contend with big capacities getting commissioned in batches. This may well put pressure on cost.

TYRE

The continuing high rate of economic growth and the production of vehicles should support sustainable healthy demand for tyres, both in the original equipment and replacement markets. The continuing thrust on the road infrastructure development is also expected to have a positive effect on tyre demand. Automobile majors continue to operate at full capacity and they also have ambitious growth plans, which should in turn trigger growth of the tyre industry of around 10% in the next five years.

Volatility in raw materials prices, especially natural rubber and petroleum products and rising imports of cheap tyres from China are threats that the industry will have to live with.

RAYON & TRANSPARENT PAPER

The rise in domestic demand for superfine deniers category of VFY has offered a good marketing opportunity. Exports of VFY have also shown a rising trend. However, cost inflation and the availability of other varieties of cheaper synthetic yarns, including growing imports pose considerable threat and severe competition in the global market.

A reduction in the effective rate of excise duty from 16.48% to 14.42% in the current year's budget may help T.P. to be marketed more aggressively. The cheaper substitutes Biaxially Oriented Polypropylene-Polyvinyl Chloride (BOPP-PVC) and the low cost unregulated imports, however, remain a major threat.

SPUN PIPES

The demand for C.I. Pipes is good. Accordingly, access to alternative low cost raw material and technology improvement to achieve better quality and cost reduction should ensure improved results.

Further, the possible shift and product base adaptation to market requirements should improve the position. However, competition from Ductile Iron Industry for which claims are made of higher strength and lower weight, including new capacities will remain a threat.

HEAVY CHEMICALS

The Commissioning of new expanded capacities of Caustic Soda in two plants may affect the balance in demand-supply of Caustic Soda & joint products.