Nearer home, in India, the prospect appears to be no better for the cement sector. From the time that the Cement Manufacturers´ Association stopped publishing the famous monthly report, credible all-India data is difficult to come by, although various analysts and industry watchers gamely try to put together some production, despatch and capacity utilisation numbers using a mix of half-cooked data, projections, extrapolations, assumptions and such other tools. Quite a few reports are available regarding this sector, throwing up somewhat dissimilar (but not contrasting ) figures, while there is but one common thread running - and that is - a bit bleak in the short term. Everyone agrees that demand would have grown by a paltry 3 to 4 % in FY 2016, with a consequential drop in capacity utilisations, and FY 2017 may not be any better. There seems to be a consensus developing amongst the industry watchers that a real rebound in infrastructure projects and therefore, in cement demand will only be visible in FY 18. This is ostensibly due to the delay now foreseen for materialisation of the effects of all the work being done by the government to untie the knots and tangles in the infrastructure space.
So, what else can happen for the cement sector in 2016?
One upside that the industry is surely looking forward to, is a continuation of the commodity cycle trough, so that cement plants can continue to reap the advantages from lower fuel costs. The industry will be hoping that the down cycle does not bottom out in 2016. When market does not support improvements in capacity utilisations and prices, the least one can do is manage the costs better to protect margins, and in trying to do this, the industry will welcome some providential help. The other point of interest for me will be to observe how the cement players are shaping up to anticipate and strategically confront the possible regulatory changes arising from the Paris Climate Change Conference. This may mean some exciting and innovative approaches in energy and resource management strategies going forward. To this medley, if one were to add the possibility of a couple of M&A transactions perhaps leading to further consolidation of the industry, it does seem that the sector will not have too many dull moments in the coming year.
In this issue, we have talked about Retrofitting of Cement Plants. Plant renovations are done either to extend life spans or to enhance capacities, or both. Obviously, the business case is stronger if retrofitting is initiated to obtain expansion of both life and capacity. But in a market where demand growth outlooks have been muted through consecutive years, and the medium term scenario going forward remains uncertain, the conformists will not venture into investments in plant revamps, even if such investments are relatively capital efficient in terms of Rs/tonne of additional capacity. On the other hand, the contrarian view may be to plunge into investments right during such slowdowns, such that one is correctly positioned to exploit the inevitable upturn that is bound to come. We wish all the best to proponents of both these philosophies.