Good Times, at Long Last
Good Times, at Long Last

Good Times, at Long Last

If the exit quarter of FY 18 is an indication of things to come, we are going to have a bumper FY 19 for the cement industry this year. In fact, the last quarter was so good in terms of demand, that it pulled the yearly growth number to an impressive 6 per cent as against a dismal minus 1 per cent in the previous year. Truly, the last year last quarter was good news as good news can ever be, for the cement industry, which has been languishing for successive quarters with virtually no or low growth in consumption.
CARE has reported that cement production during the year FY 18 stood at 297.6 MT, 6.3 per cent higher than the previous year's 280 MT. This growth of 6 per cent came on a lower base in FY 17, while seen against 283.5 MT of FY16, the growth would be much lesser. CARE has also documented that the total installed capacity at the end of this period, stood at approximately 455 MT. Therefore, capacity utilisation in the industry improved marginally from 64.9 per cent to 65.3 per cent. Government backed mega-infrastructure projects such as Bharatmala for roads, Sagarmala for ports and development of dedicated freight corridors and smart city project, as well as "Housing for All" scheme, have no doubt collectively contributed to this small recovery.
Additionally, two successive years (FY17 & FY18) witnessed above average monsoons promoting healthy demand from rural housing. The demonetisation exercise impacted the demand from rural and retail real estate segment during the second half of Q3 and, Q4 in FY17. But the same has evidently turned around to some extent, during FY18. On the basis of this foundation of recovery, and in the backdrop of a forecast of GDP growth of 7 per cent + in the current year, observers have boldly projected a growth in cement demand of 7-8 per cent in FY 18. All this portends well for the industry. All factors point towards a robust performance of the cement sector in this year.
However, what the cement sector and the market really looks forward to, in the medium term, is the return of pricing power, which cannot come unless capacity utilisation crosses the magic threshold of 80 per cent, on regional basis, - and such a situation can only come after 3 to 4 years of solid back-to-back demand growth. So, we don't just need to have one good year, but we need to have a series of good years, for the "Good Times" to return in cement market.
In this context, the rumbling signals from the macro-economic strata are somewhat ominous. The petroleum prices are rising, inflation has again reared its head, government has its back to the wall in managing the budget deficit, (advent of the election year doesn't make that task any easier), US Interest rates are moving up, Rupee is on a slide southwards, and it is only a matter of time that RBI starts moving our interest rates up a few notches.
Let us hope that cement will buck these trends, and bring back sustained good times for the stakeholders.
Sumit Banerjee Chairman, Editorial Advisory Board
No stories found.
Indian Cement Review