Can we budge-it?
The Indian cement industry is the 2nd largest market after China accounting for about 8 per cent of the total global production. It had a total capacity of over 360 million tonnes (mt) as of financial year ended 2013-14. With cement capacity touching 390 mt and likely demand of 275 mt in 2015, there is expected to be a surplus capacity of 115 mt during the year. The Industry is projected to operate @ 70-72 per cent of capacity utilisation in 2015, which doesn´t augur well with cement majors. The installed capacity in India may register a growth of eight per to 395 mt from the current level of 366 mt. It may increase further to 421 mt by the end of 2017. Concretisation of roads, dedicated freight corridors, development of smart cities, metro rail projects, are some of the major thrust areas of the government, which will drive cement consumption in coming year. Further with new rules on funding for infrastructure projects and revival of many stalled projects, overall demand is expected to be high. Further, easing of rules for FDI in real estate sector plus likely reduction of interest rates, commercial and real estate sector are also likely to drive cement consumption. However, the industry feels that all depends on how the government can implement its dream projects. The current deficit of the Government is likely to derail much of its public spending plans. Further, Union Transport Minister Nitin Gadkari recently said that all new highway projects supported by National Highways Authority of India will use concrete. That´s a welcome move. However, will zeroing on suppliers who can supply cement for a fixed price of Rs 120 per bag during the period of construction, against the current price of Rs 350 (excluding taxes and transport) jeopardise the move?
Despite the current challenges that dent the growth of the industry, the long term drivers for growth remain intact. The Union Budget 2015-16 is being seen as a landmark one which would set the tone of the new government´s resolve in reforming India. Higher government spending on infrastructure, robust growth in rural housing and rising per capita incomes are likely outcomes if the budget makes an aggressive plan for public spending.
INDIAN CEMENT REVIEW wishes all its esteemed readers a HAPPY AND PROSPEROUS NEW YEAR!