Since its invention, demand for cement has been largely driven by housing and infrastructure. For countries like ours, which depend mostly on brick and mortar for building homes, home-building has traditionally been a major driver of cement consumption. It is a different matter, that gradually, the demand from housing has moved from small individual houses to organised housing complexes and mass housing projects. However, in spite of all the changes in the market and the focus on infrastructure, even today housing continues to be 65 per cent of the Indian cement market. So, it must go without saying, that if housing grows rapidly, cement demand grows in a commensurate manner, which is sweet tiding for the industry indeed.

To get a sense of the impact of housing on cement consumption, every house (built in the affordable housing category) consumes roughly about 70 bags of cement, which amounts to 3.5 tonne. If we consider 22 million houses as considered in the project, it amounts to an incremental cement demand of 77 million tonne (MT). This also tallies with the empirical formula that every square feet of construction requires 25 kg or half a bag of cement. At 70 bags, such small houses translates to just about 140 square feet (sq ft). The actual sizes of the so-called affordable houses can be larger, and therefore, this incremental demand has an upside possibility. Now, we all know that 77 MT is a rather significant chunk of potential demand that will make the industry’s mouth literally water. What is the status of affordable housing project on the ground? According to a report published in a premier Business Daily, affordable housing segment rose 27 per cent in terms of new units launched in top eight cities of the country. More than 26,000 new units have been launched in 2017 so far, data from Cushman & Wakefield revealed. Of the total new launches in affordable units, 40 per cent were in Mumbai, followed closely by Kolkata and Pune.

All in all, there is no doubt whatsoever that the government’s current focus on spends on housing/infrastructure segment augurs well for the cement sector.

Recapitalisation of PSU banks, and gradual stabilisation of RERA regime will also have a positive down stream effect on the construction sector. The numbers thrown up by various departments indicate a healthy incremental cement demand of over 100 MT (cumulative) over the next five years, which translates to a demand CAGR of over 8 per cent, which we have not seen in recent times! Housing alone is slated to consume upwards of 75 MT of cement with the government’s target to build 22 million houses in 3-5 years. Road projects can add another 25-30 MT of consumption. Thus, just housing and road construction can add 100 MT of cement demand over the next five years, which is adequate for an exciting 10 per cent growth in capacity utilisation of the industry. Construction of other infrastructure such as airports, ports, and railway network will only add further to this tally. If all this fructify, we can expect the industry utilisation to touch nearly 85 per cent over the next 3-5 years.

The irony is, besides cement, we need sand also for house building. In fact, 120 cubic feet of sand is required for construction of 100 sq ft of home. Given that sand availability has become a serious issue in the states of Uttar Pradesh, Bihar, Madhya Pradesh, Tamil Nadu and Telangana due to the ban on illegal mining in some of these regions, sand could become a serious spoilsport in this otherwise rosy story.

Sumit Banerjee Chairman, Editorial Advisory Board