Economy & Market

Competitiveness in Challenging Times

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In the normal course, your editor would have extolled the virtues of competitiveness, and the importance of cost reduction, as applicable to commodity players, as a recipe for staying on top in the industry. But the events of the last few weeks have turned things upside down, and the resulting business environment is far from what can be termed as "normal". The shockwaves caused by the so-called "demonetisation" has left no one in the country unaffected, and it is not going to be "business as usual" for any kind of business for quite some time to come. It will certainly take some time for the dust to settle down and forecasts to crystallise.

Demonetisation is bad news for the cement industry. Just when the analysts were predicting an uptick in rural housing demand driven by a good monsoon, and industry observers were expecting a healthier demand growth in FY 17-18 to the extent of even 7 or 8 per cent, this bolt from the blue has sent everyone hurrying back to their workstations to revisit the potential scenario.

It is now reasonably certain that demonetisation will have a near-term negative impact; people seem to agree that volume impact is likely to be 20-30 per cent downward in November 2016 with possible marginal recovery in December. Since the last quarter is usually a good period for cement consumption, shipments may start limping back to the baseline, but experts are not ready to vouch for this. Given that the adverse impact of demonetisation is slated to be the sharpest on the real estate sector, which happens to be one of the large consumers of cement, the industry is getting ready for the worst. The government may step up the gas on infrastructure projects, but this may not be enough to mitigate the dip created by a potential slump in the real estate sector.

We have always connected our projections of cement demand growth to the GDP growth of the country, and in the face of predictions that GDP growth for FY17 is going to be snipped by 1 to 2 per cent, if not more, we can only draw correspondingly dismal conclusions for the cement demand growth forecasts. Overall, one must accept that the cement industry is in for challenging times in the next six months at least, if not more.

In such difficult times, when demand may be stagnant, and capacity utilisations may disappoint further, the subject of competitiveness assumes greater relevance. And this can only be achieved by cement companies through relentless cost-reduction efforts. Therefore, you may find that the topics covered in this issue, which are around cost management in general, and on energy efficiency, process optimization and logistics planning in particular, to be quite purposeful in today?s context. We do hope that these inputs add value to the discourse in the industry on the importance of competitiveness at all times, and particularly in these challenging times.

In the mean time, we wish that as a nation, we are able to prevail over corruption and black wealth, and get some returns on the huge investments being made by us in this demonetisation process.

Sumit Banerjee Chairman, Editorial Advisory Board

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