Issue after issue, month after month, we discuss the market situation for the cement sector, and report on demand growth statistics, to the extent these are available. For quite some time now, expectations of a recovery of demand are mounting, what with all the talk about heightened activity levels in housing, infrastructure and smart cities. With all that talk, or in spite of all the hype, cement production in the first five months of this fiscal fell 3.2 per cent to 117 million tonnes (MT) against 121 MT in the same period last year, according to official DIPP figures. One could argue, that the widespread and successful monsoon across the country adversely impacted demand in August and September resulting in this fall in demand. However, now that the October IIP numbers have been released, we have on record that cement has further dropped by 2.7 per cent in this October vis a vis previous year same month, and that is a cause of serious concern.
It is however, a somewhat different matter, that in spite of a consistently lackadaisical demand growth performance of the industry, and even in the face of weakening demand pull, cement prices were seen to be stable in general, falling sometimes in some regions, but making up and covering ground soon thereafter. This happened as cement players tried to increase and hold on to prices across regions as they tried to pass on rising costs to consumers to protect their margins. Among key raw materials, pet coke prices increased 12-15 per cent in the second quarter of this fiscal. Power and fuel cost also registered a substantial rise due to increase in coal prices. As if on cue, diesel prices also moved up by 6-7 per cent, impacting the freight expenses. In the face of all these hikes in costs, and in the face of an indifferent market, it was remarkable that the industry’s profitability did not take a tumble.
For the current financial year FY2018, ICRA now forecasts a token 1 per cent growth of cement demand, which sounds eerily similar to what we have maintained in these columns in our previous issues. Following up on a negative growth of 1 per cent reported in FY2017 (last financial year), we are now looking at two successive years of stagnation of cement industry.
Looking beyond these monthly, quarterly or even annual ups and downs, the cement industry needs to formulate longer term strategies to promote consumption of cement, and in doing this, it has to be able to involve the government into it, such that regulatory support is also available for implementation of such a long term plan.
Something similar used to happen under the aegis of the erstwhile Planning Commission, in the shape of sectoral inputs into the 5-Year Plans, but those are history now. We recently saw the instance of National Steel Policy which set an ambitious goal of tripling capacity to 300 MT by 2030-31, and achieving a per capita steel consumption of 158 kg up from current 61kg. Such a plan would entail investments of at least Rs 10 Lakh crore across the steel value chain, upstream and downstream. We need a similar master plan for cement, say, a "National Cement Policy", which would envisage lifting our per capita cement consumption to the levels of 800-1,000 kg. Most important element of that plan will have to think through actions by all stakeholders for promoting cement consumption in India.
Regrettably, we are sorely missing one such national cement strategy 2030, even as we are too much preoccupied with the transients of the market!
Sumit Banerjee Chairman, Editorial Advisory Board
