- In 6M FY2020, the production was higher by a modest 0.7% at 163.7 million MT, compared to 162.5 million MT in the corresponding period previous year
- The easing of the cost side pressures owing to a decline in the input costs along with higher cement prices is likely to support the profitability in the near term
The domestic cement demand growth is expected to taper to around 4% in FY2020 from a double-digit growth rate of 13.3% in the previous fiscal year. As per ICRA, cement prices have declined especially from June - October 2019 in most markets owing to weak demand. While the demand growth in Q1 FY2020 was adversely impacted owing to a slowdown in project execution due to the general elections and labor unavailability, in Q2 FY2020, the cement consumption is generally on lower side owing to the monsoon season. However, on a Y-o-Y basis, as the cement prices have remained on a higher side which coupled with the easing of cost side pressures is likely to support the cement companies' profitability in the near term.
Commenting further, Mr. Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings says, "Overall, in H1 FY2020, the cement production was higher by a mere 0.7% Y-o-Y. Given, the current situation of delays in project execution arising due to liquidity issues, the revival in demand in the near term remains critical, to even achieve a growth rate of 4% in FY2020. At this growth rate and with the expectation of around 20-22 million MTPA capacity addition in FY2020, the capacity utilization at 71% in FY2020 is likely to remain largely similar to that in previous year."
In 6M FY2020, the production was higher by a modest 0.7% at 163.7 million MT, compared to 162.5 million MT in the corresponding period previous year. The cement demand across various regions has been adversely impacted in H1 FY2020. In the northern and central regions, demand remained tepid due to slowdown in execution of Government projects and labour scarcity. In the western region, while demand in Gujarat was negatively impacted by labour and water scarcity, in Maharashtra, it was positively driven by infrastructure and affordable housing. In the eastern region, demand was sluggish across segments, due to weak project execution, unavailability of sand and shortage of funds. In the southern region, while demand momentum sustained in Kerala, driven by post-flood rehabilitation work and low-cost housing; and construction activity in Karnataka, it remained weak in Andhra Pradesh, due to sand unavailability and cancellation of old orders by the new state government.
As for the prices in most markets, ICRA mentions that the same at pan-India level are higher in 7M FY2020 as compared to the corresponding period of the previous year. In the Mumbai and Hyderabad markets, the prices are higher by 10%-14% and in Delhi, around 20%-25% during this period. This is despite the decline in the cement prices in the recent past. Cement prices declined in June 2019 on an M-o-M basis in the southern markets owing to a demand slowdown along with supply pressure.
Adds Mr. Majumdar, "In July-August 2019, prices declined in most markets on a M-o-M basis due to muted demand, mainly on the back of the monsoons. In September-October 2019, prices declined in most markets on a M-o-M basis except in the Southern markets. This current trend of decline in the cement prices can be arrested only if there is a revival in the cement demand. However, this along with the easing of the cost side pressures owing to a decline in the input costs such as coal, pet coke and diesel prices along with the higher cement prices is likely to support the profitability in the near term."