Domestic cement demand is likely stay muted in the remaining period of FY18 due to weak real estate activity, sand shortage and issues related to implementation of GST. The cement demand continued to be weak in first eight months of FY18 and showed only a marginal increase of 0.5% in November 2017 on an month-on-month basis at 24.1 million tonne. Based on the current trend, demand is likely to report a modest growth of around 2% in FY18, said an Icra note. Though cement demand registered a y-o-y growth of 17.3% in November 2017, this was primarily due to the base effect arising out of low production of 20.5 million tonne in November 2016, the month when demonetisation of higher-value currency was announced. During the first eight months of FY18, cement production witnessed a marginal growth of 0.6% at 190 million tonne as compared to 188.8 million tonne during in the year ago period. Production declined by 3.3% in Q1 FY18 and by 0.4% in Q2 FY18 on a y-o-y basis.
During Q1 FY18, demand was adversely impacted due to various local issues across regions. In the north (especially in Uttar Pradesh and Punjab), it was impacted by sand shortage and labour unavailability, while in the west, the implementation of the Real Estate Regulatory Authority (RERA) Bill resulted in construction activity slowing down. In south, Tamil Nadu and Kerala were worst hit as demand was affected due to sand shortage, drought (impacting rural demand) and weak housing activity.
During Q2 FY18, GST implementation issues, monsoons and continued sand unavailability impacted demand, the Icra note pointed out. In the western and eastern markets, prices are higher by Rs 25-35/bag in nine months of FY18 compared to the year ago period. While the prices continue to remain almost at similar levels in FY18 compared to FY17 in the northern markets, they were lower by Rs 10/bag in the southern markets.
Sabyasachi Majumdar, senior vice-president & group head, ICRA Ratings, said, “Going forward, the demand growth is likely to be driven by a pick-up in the housing segment — primarily affordable and rural housing, and infrastructure segment — primarily road and irrigation projects. However, new project announcements from the private sector continue to remain weak and revival of public-private partnership is crucial to improve the pace of infrastructure development.”
“A pick-up in the affordable and rural-housing segments and infrastructure — primarily road and irrigation projects — is likely to help improve the cement demand grow to 4-5% in FY19. However, it is expected the capacity overhang and moderate demand growth to continue to keep the industry’s capacity utilisation level between 60 and 65% over the medium term,” Majumdar added.
