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Lacklustre infra spend dampens cement demand

G Balachandar Chennai | Updated on November 19, 2019 Published on November 19, 2019

The lull in infrastructure activities and cancellation of some major projects remain a cause for concern though better prices in some markets have provided relief   -  PV Sivakumar

Industry may end FY20 with low single-digit growth

Lack of momentum in government spending and delay in the execution of infrastructure projects along with continuing sluggishness in the economy are likely to keep cement volume growth under check during the second half of this fiscal.

Cement demand across various regions was impacted during the first half of this fiscal. Each region had one reason or anther for the demand pressure.

Excessive rains across several States also resulted in dismal cement volumes.

According to trade estimates, the cement industry’s growth was flat during the first six months of the fiscal. The second half doesn’t hold out any hope either.

Projects hit

The fall in infrastructure activities and cancellation of some major projects cause concern for cement makers even though prices in some markets appear to be providing some relief.

There has not been a significant pick up in government spending which has impacted cement consumption which is primarily driven by infrastructure. The housing sector and individual home market have not exhibited any signs of recovery either. NHAI-led projects have also seen a major slowdown in the past few quarters.

“The drop in government spending on infrastructure is a concern for our industry though we see good traction in rural housing segment and construction activity in Tier-2 and -3 locations,” said KN Cooper, Managing Director of HeidelbergCement and Zuari Cement.

South has been the worst-hit with a decline of 10 per cent in demand during the September quarter. Cancellation of some major projects in Andhra Pradesh has dampened the prospects of volume growth in the region.

The AP, Telangana shock

N Srinivasan, Vice-Chairman and Managing Director, India Cements, said during the discussion on the company’s Q2 performance: “There was a substantial reduction of demand in Andhra Pradesh and Telangana. India Cements lost almost 1 lakh tonnes per month in these two States combined during the September quarter.” .

Industry representatives point out that while central, northern and western region would witness some demand, the sluggishness in South is expected to continue due to lack of government spending and the depressed housing market.

According to Sabyasachi Majumdar, Senior Vice-President & Group Head, ICRA Ratings, the demand revival will remain slow in the near term given the delays in project execution arising due to liquidity issues and other factors. The demand growth has been revised downwards to around 4-5 per cent from the earlier estimate of seven per cent.

During July-September 2019, prices declined in most markets on a month-on-month basis mainly due to the monsoon. If there is a revival in demand, it might improve the prices, though the easing of cost-side pressures may help cement companies improve their bottomline.

Published on November 19, 2019
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