The supply of the construction raw material is expected to overtake the demand in 2008-09 when the capacity expansion projects of cement manufacturers are completed. This would bring down prices by 7-15 per cent and weigh down heavily on the companies' earnings, analysts at domestic brokerage firm SSKI said in a report.

While companies have announced significant capacity expansion amid a dream run over the past two-three years with robust profitability driven by record high prices, they said, adding the supply-demand scenario was now set to turn negative for the sector.

Cement firms could see their annual earnings plunge 19-34 per cent during 2008-09 as the ongoing cement cycle is unlikely to extend beyond the current fiscal, they added.

The manufacturers have seen their share prices and profits significantly appreciate in the last one year even as they remain firm on not cutting prices despite the government repeatedly asking them to reduce prices as part of the efforts to contain inflation.

On an average, cement prices have increased from Rs 156 a bag in March 2004 to Rs 225 per bag in March 2007, driving revenues and profits of cement companies.

The analysts wrote in a research note sent to their institutional clients the rally seen in the sector is unlikely to extend beyond 2007-08 despite strong demand growth or maintenance of pricing discipline by companies.

A tight demand-supply situation has driven prices to record highs over the past two-three years and in anticipation of further demand growth, companies have announced capacity additions of close to 99 million tonnes by 2009-10.

Cement demand grew at a compounded annual growth rate of 12 per cent in 2005-06 and 10.5 per cent in 2006-07, but supply failed to keep pace in the absence of any significant capacity addition during the past three-four years.

However, due to large capacity additions being planned, supply would grow close to 13 per cent over FY07-10, as compared to 10 per cent demand growth. This could lead to a surplus of about 8.6 million tonnes in 2008-09, analysts said.

Some industry experts also believe cement industry has achieved a reasonable level of consolidation with five-six players controlling about 50 per cent of the total capacity.

This could allow companies to hold prices firm even during an oversupply scenario, as has been demonstrated over the past one year when prices have gone over the roof despite pressure from the government, they argue.