How Long is the Tunnel....
How Long is the Tunnel....

How Long is the Tunnel....

Is there a light at the end of the tunnel? How long is the tunnel, anyway? The hapless cement industry is by now, waiting for the recovery to happen for a few years and several quarters, and, barring seasonal blips; there has been no sustained demand uptick in sight.

Some statistics first. According to official data, cement production in the first quarter saw de-growth of 3.9 per cent. Cement production stood at 72.67 MT in Q1FY17 vs 75.7 MT in Q1 FY16. For the period April'17 to July'17, the production has declined by 3.5 per cent to 95.37 MT vs 98.87 MT during the same period last year. Even in August 2017, for which government data was made recently available, when IIP reportedly grew by 4 per cent on the back of mining and electricity, cement still declined by 1.3 per cent. September to November are traditionally the best three months for cement industry, and even if a seasonal demand pull is seen during this period, to my mind, it will not prove anything regarding the visibility of the proverbial " light at the end of the tunnel".

If we were to analyse the demand of cement by traditional segments, housing sector, which constitutes nearly 65 per cent of our cement consumption has seen low inventory additions and new launches as claimed by various industry sources. We expect this situation to persist as developers remain cautious and watchful of the evolving regulatory environment.

Infrastructure historically contributed to 13 per cent of the total consumption in India. With increasing government spend and lower activity levels in real estate, infrastructure's share in cement consumption would inch upwards of 15 per cent by the next fiscal year. In the nearer term, roads and public infrastructure development is expected to push the demand for cement in the two coming quarters. Much was expected from the flagship projects of the government like Smart Cities and Housing for All, but so far these have proved to be damp squibs in generating demand for construction or cement. One can only hope that these projects will pick up steam in FY19. Demand from other segments like industrial and commercial are expected to remain generally subdued.

Overall, it does appear that real recovery will elude the sector in FY18, and that the next year holds out better prospects of a revival. Already, some industry-watchers have revised growth estimates from 6-7 per cent to 3-4 per cent, for the current year, and this writer believes even this lesser growth would not be achieved. However, some regions like East may pleasantly surprise with better demand numbers, but will do little to resurrect the national totals.

So, what does this tell us about that light? May be, we will have to wait till sometime in 2018-19 for that elusive signal.

Sumit Banerjee Chairman, Editorial Advisory Board

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