A close look at which industries are adding capacity


From steel to cement, power generation to oil refining, Indian companies are pouring in thousands of crores to expand capacity. This is being done through de-bottlenecking and brownfield expansion. What is more, companies are expanding not just to meet the growing domestic demand but also to tap the export market. “There is a new found confidence. Companies learnt to live with overcapacity and paid the price of unbridled expansion in the 1990s. Their efficiency level is on a new high. As demand grows more and more companies are rushing to the drawing board to prepare the blue-print for expansion,” says the executive director of a big corporate house.

So who’s adding capacity? Steel companies are. So are non-ferrous metals companies. The cement industry is reviewing projects it had put on the backburner. The petroleum industry is certainly expanding capacity, as is the telecommunications industry. And shipping companies are scrambling to expand their fleets. 

Steel companies were among the worst hit in the last few years, with aggregate losses of Rs 3,000 crore in 2002-2003. But the industry has been on a roll for the last 18 months with prices moving northwards. 
With large steel companies bouncing back (Tata Steel has been an exception by being always profitable and posting record profits every year), the sector will see over Rs 3,700 crore of expansion in the next year or two. This is largely to meet the export demand. The global demand led by China is expected to go up, leading to a shortage of the metal. Since the US is easing its import laws, the vast American market may again open up for Indian companies. 

The steel sector has an installed capacity of around 31 million tonne, almost equal to China’s annual steel imports. Around 5 million tonne of steel is exported annually. Higher utilisation levels – from 90 per cent to 100 per cent in 2004 – will see production rising by almost 5 million tonnes. 

Tata Steel has committed Rs 1,700 crore for a 1 million tonne expansion. It’s also finalising plans for another million tonne. Ispat Industries is hiking capacity by 1.2 million tonne to 3.6 million tonne at an investment of Rs 890 crore. Jindal Iron & Steel is increasing capacity by almost a million tonne in hot rolled coils, cold-rolled coils and galvanised products. Ditto about Essar Steel and Steel Authority of India. 

Not to be left behind, non-ferrous metals companies are planning to add capacity on a grand scale. Hindalco Industries – which is adding 1 lakh tonne each to its aluminum and copper smelters in 2004 – is planning yet another round of expansion in both the businesses. Sterlite has already announced a Rs 4,000 crore alumina project in Orissa and another Rs 5,000 crore expansion at Bharat Aluminium Co. Hindustan Zinc is also giving shape to a Rs 1,600 crore expansion. 

Even the cement industry – which faces a glut of almost 10 million tonne of the total installed capacity of 120 million tonne – is reviewing projects that were put on the backburner. Gujarat Ambuja and Larsen & Toubro have completed the required formalities for projects in Andhra Pradesh and Orissa, respectively. Grasim has already announced a 3 million tonne expansion through de-bottlenecking. Even though domestic demand is expected to grow by 7 per cent annually, the sector will experience an addition of 3-4 million tonne every year through de-bottlenecking and an increasing blending ratio. 

The automobiles industry presents a contrasting scenario. The commercial vehicles segment is saddled with excess capacity and the passenger car segment is finding it difficult to meet demand. 
Tata Motors – which has been servicing long waiting lists for both its Indica and Indigo for some time – will push up passenger car capacity at its Pune facility from 1.5 lakh to 2.5 lakh at an investment of Rs 350-500 crore. Hyundai Motors is well on its way to investing $225-250 million (Rs 1,024-1,138 crore) to raise the capacity from 1.4 lakh units to 2.5 lakh units by August. General Motors will raise its annual capacity from 25,000 units to 50,000 units at its Halol plant.

When it comes to capacity addition, the oil refining industry is king of the heap. In April 2003, the refining sector had a capacity of 114.6 million tonnes per annum. By debottlenecking and upgradation alone, almost 10 million tonnes of refining capacities will be added. For now, refinery companies are investing not only to upgrade and modernise their plants but also to debottleneck units at a marginal cost. This is largely to meet the Mashelkar Committee recommendations of interdicting Euro-III norms for vehicles, excluding the two- and three-wheelers. The norms come into effect in the metropolitan cities in April next year.

IOC has added one million tonne capacity at its Barauni refinery, taking the refinery capacity to four million tonnes per annum. It’s also doubling capacity of its Panipat refinery from six to 12 million tonnes per annum. BPCL is investing Rs 1,800 crore to upgrade its refinery products, besides augmenting capacity at its Mumbai refinery to 12 million tonnes. 

Hindustan Petroleum is modernising its Mumbai and Vizag refineries at a capital outlay of Rs 1,152 crore and Rs 1,635 crore, respectively. This envisages a crude throughput capacity enhancement for its Mumbai refinery from 5.5 million tonne per annum to 7.9 million tonne. At its Visakhapatnam refinery, annual capacity will go up from 7.5 million tonnes to 8.33 million tonne.

Even Reliance Industries has debottlenecked its original name plate design capacity of 27 million tonne per annum to 30 million tonnes and is further debottlenecking it to 33 million tonne per annum. Says Subir Raha, ONGC chairman and managing director: “In the oil and gas sector, major investments are being made in the science and technology of exploration. Big risks are being taken with the hope of big rewards. This pro-active strategy has to be sustained by true globalisation of prices. The economy has never been stronger, and we are on the threshold of great opportunities”

The Electricity Act, 2003, may induce private companies too to set up generating capacities. The Reliance-controlled BSES is looking at setting up a 3,000 mw power plant and Tata Power another 1,500 mw. The RPG group’s CESC is also keen to tie up with a foreign partner and set up new power projects. Last but not least, the shipping industry has witnessed a 6.77 per cent capacity addition in 2003 with the fleet rising to 6.62 million dead weight tonne (dwt) from 6.20 million dwt. 
Bharat Sheth, managing director, G E Shipping, says that the industry’s future is bright: “India is a net importer of crude oil and a net exporter of certain types of petroleum products. Hence, there exists a huge potential for the Indian shipping to service its domestic requirements.” Expect, therefore, further capacity addition.