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Sri Lanka cement capacity to outstrip demand in next few years

ECONOMYNEXT – Sri Lanka’s cement production and bagging capacity will outstrip demand in the near term with new plants coming in, until the economic activity recovers, Asia Securities, a Colombo-based brokerage said in a research report said.

Sri Lanka’s cement sales had fallen 6 percent to 6.3 million metric tonnes in 2019 from 6.7 million metric tonnes in 2018.

The construction industry has slowed after Sri Lanka’s rupee collapsed twice in rapid succession in the wake of liquidity injections made by the central bank, breaking a soft-peg with the US dollar, triggering two busts in a row.

Monetary instability tends to keep interest rates elevated and each currency collapse tends to trigger a negative output shock, a demand contraction and a spike in bad loans, analysts have said.

Sri Lanka can now produce 8.8 million tonnes of with plants running at 85 percent capacity with Tokyo Cement accounting for 38 percent with grinding and bagging plants.

INSEE cement accounts for another 35 percent with an integrated cement plant, grinding and bagging plants.

India’s Ultratech 13.6 percent and a number of importers the balance.

Capacity would be boosted to 10.3 million tonnes in 2020, with bagging plant by Melsta Gama bringing in 9.7 percent of capacity, Asia Securities Construction Sector analyst Naveed Majeed said.

Sri Lanka’s Ceylon Steel/Onyx group would also take up 9.7 percent of the new capacity.

The group would add more capacity in 2022 taking the total domestic production and bagging volumes to 11.7 million metric tonnes with plants runnign at 85 percent.

Ceylon Steel/Onyx group would take up 20.3 percent of capacity share and the share of Tokyo would drop to 29 percent and INSEE to 26.4 percent.

Ceylon Steel/Onyx group is a top player in steel production at the moment where massive import protection had been lobbied, pushing up Sri Lanka’s construction costs and making taking away the economics freedoms of the less affluent in particular and making it less easy for the nation to fulfill its shelter requirements, critics have said.

Sri Lanka’s high steel costs and the excess profits (rents) earned by steel makers in collusion with the state are also making the island’s export industries and hotels uncompetitive with East Asia and other global markets by pushing up capital costs of buildings, critics have said.

Unlike steel Sri Lanka’s cement industry has relatively low taxes and is also under price control and is not considered to be harming the shelter requirements of the less affluent or the competitiveness of export industries of the country. (Colombo/Feb23/2020 – This story has been updated and recast to show production capacity with factories running at 85 percent)

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