The Indian cement industry is the second largest cement producer in the world after China with a production capacity of nearly 420 million tonnes. It accounts for 6.9% of the world’s cement output.
India’s cement production capacity is expected to reach 550 million tonnes by 2025. The industry provides employment to more than a million people directly or indirectly. In a country like India, the demand for cement is derived chiefly from the housing sector. One-fourth of the demand comes from the infrastructure sector and about 10-15% demand is generated from the commercial construction sector.
According to an ICRA report, the cement off-take continued to be weak in FY2018 and showed only a marginal increase of 0.5% in November 2017. Based on the current trends, the demand for cement is likely to report a modest growth of around 2% in FY2018. Though it registered a y-o-y growth of 17.3% in November 2017, this was primarily due to the base effect arising out of low production of 20.5 million MT in November 2016.
FY 2017-18 was a difficult year for the industry, with growth coming down to low single digit figures. The most obvious cause was the slowdown in the housing sector. There were also a few challenges in FY2017-18 like the ban on sand mining and use of pet coke, diminished market concentration of industry leaders, implementation of the Real Estate Regulatory Authority (RERA) Act, and widespread drought situation. But in Q3 of FY2018, production increased by 11.6% to reach 75.6 million MT supported by demand in Andhra Pradesh, Telangana, the eastern (except Bihar) and western markets. Also, production was lower in Q3 FY2017 on account of demonetisation.
Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings, said, “Going forward, the demand growth is likely to be driven by a pickup in the housing segment – primarily affordable and rural housing, and infrastructure segment – primarily road and irrigation projects. However, new project announcements from the private sector continue to remain weak and revival of public-private partnership is crucial to improve the pace of infrastructure development.”
Cement demand is expected to grow by 6-7% to reach 307 million tonnes during FY2018-19. There are a number of infrastructure projects that are planned by the government. With the approaching general elections, experts believe that there would be a greater push by all agencies to progress these projects. However, a rise in the prices of building materials will have a huge impact on the construction cost. The recent mining restriction, the doubling of prices, along with a further hike in input costs are likely to create pressure on cement consumption.
Amitabh Kant, Secretary, Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India, has said that the cement industry has to grow 20-25% annually over the next three decades to meet the requirement of a rapidly growing Indian economy. In 2015, while delivering the inaugural address at the 53rd Annual Session of Cement Manufacturers’ Association (CMA), he had said that for sustained high growth of rate, manufacturing has to grow by 13-14%.
Investments by major players
A report published by the State Bank of India (SBI) in December 2017 points out that there have been some major investments in the cement sector with Emami planning to pump in around ₹8,500 crore in scaling up its production capacity from 2.4 MT to 15-20 MT in the next three to five years. The Nirma Group has also acquired Lafarge India’s cement business with a production capacity of 11 MT.
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