Concrete

The Add-On Effect

Published

1 year ago

April 7, 2023

admin

Hetal Gandhi, Director – Research, and Koustav Mazumdar, Associate Director, CRISIL Market Intelligence and Analytics discuss the increased budget outlay for infrastructure to boost cement demand and to rapidly develop the east and central regions of the country.

The domestic cement industry has been in high demand over the past fiscal or so.
A rush of government spending on infrastructure has boosted consumption of this key commodity.
Demand for cement increased ~8 per cent in fiscal 2022, followed by ~11 per cent growth in the first 10 months of this fiscal. Sustained demand momentum in the last quarter of the current fiscal is expected to peg demand growth at 11 per cent for the full fiscal on a high base of the previous fiscal.
The infra-focused budget, presented on February 1, will ensure the momentum continues into the next fiscal.
A ~33 per cent rise in budgeted capital expenditure to Rs 10 lakh crore for fiscal 2024, and weighty allocations to infrastructure sectors such as roads and affordable housing augur well for cement demand, which is projected to rise 7-9 per cent to ~425 million tonnes in the fiscal.

The GDP Correlation
Rise in cement demand correlates with gross domestic product (GDP) growth as economic development requires heavy investments in infrastructure such as housing, roads, ports, etc.
The cement demand growth to GDP growth multiplier (i.e., cement demand growth divided by GDP growth in the same year) witnessed an unprecedented drop in fiscals 2020 and 2021, because of the pandemic-caused economic slowdown, but recovered rapidly in fiscal 2022, with cement demand and GDP rebounding at a similar rate.
This fiscal, the multiplier is expected to pick up pace as demand growth accelerates and GDP growth moderates on a high base. We expect the multiplier to remain >1, but to decrease marginally next fiscal, as cement demand increase moderates to 7-9 per cent on a favourable base, while GDP growth slackens to ~6 per cent because of global economic slowdown, transmission of interest rate hikes to consumers (leading to weakening industrial activity), and as the catch-up in contact-based services fades.
Budget announcements indicate a robust ~20 per cent increase in capital outlay for ~13 key construction-heavy ministries for fiscal 2024. Higher allocation to cement-heavy sectors, accelerated infra execution ahead of elections, and traction in rural affordable housing are expected to lead to 7-9 per cent rise in demand next fiscal on a high base of two consecutive years. This translates to ~30 per cent rise when compared with the pre-pandemic levels and a 9-10 per cent CAGR between fiscals 2022 and 2024.
The Ministry of Road Transport and Highways (MoRTH) and the National Highways Authority of India (NHAI) have received 25 per cent and 14 per cent more allocation, respectively, in fiscal 2024BE against fiscal 2023RE, despite overachieving fiscal 2023BE targets by ~10 per cent and ~6 per cent, respectively.
The allocation for Pradhan Mantri Awas Yojana (PMAY), which includes urban and rural housing, increased 3.2 per cent for fiscal 2024 against fiscal 2023RE. Compared with fiscal 2023BE, however, the revised estimate has seen ~60.7 per cent increase to Rs 0.79 lakh crore.
Allocation under the PMAY-Gramin scheme had been increased last fiscal, with the total expenditure rising to Rs 0.48 lakh crore after an initial allocation of only Rs 0.2 lakh crore in the 2022-23 budget. The government approved an additional Rs 0.18 lakh crore in November 2022, which will also aid demand growth in the first half of the upcoming fiscal.
However, allocation under PMAY-Urban is set to decline this fiscal as it draws to a close with over 1.08 crore units either completed or nearing completion, out of the sanctioned 1.23 crore units. Finally, though there is no change in the Pradhan Mantri Gram Sadak Yojana (PMGSY) allocation (at Rs 19,000 crore for the second consecutive year), there is no reduction in expenditure either. Also, 50 additional airports, heliports, waterdromes and advanced landing grounds have been proposed for improving regional air connectivity.
All of this will boost the already sturdy demand for cement in the upcoming fiscal.
As the capital outlay indicates, infrastructure will remain the key demand driver for the cement sector, led by government spending on roads, housing, urban infra, etc.
Rural housing demand is expected to grow at a healthy rate as well on the low base of last fiscal, increased allocation under PMAY-G, and healthy rural income owing to increase in crop prices. However, the weather and monsoon will bear watching.
On the other hand, urban housing demand is expected to moderate with the PMAY-U scheme coming to a closure, and a downward slide in real estate due to surging interest rates and high
capital values.
The industrial/commercial segment will continue to support demand growth amid capital expenditure push by large players, implementation of the production-linked incentive scheme, return to office/hybrid model of working, and overall economic recovery.

The Regional Landscape
Higher traction under PMAY-G, NHAI, and PMGSY will drive demand in the high-growth east and central regions. Around 3.4 million units are under construction in these regions as of January 2023 under the PMAY-G scheme.
Region-wise, demand growth is likely to be sharper in central and eastern regions, which account for ~80 per cent of PMAY-G construction and ~41 per cent of NHAI target set for fiscals 2020-2024. A favourable base, low per-capita cement consumption, and a big housing shortage will propel demand and keep utilisation levels stable in these regions, given aggressive capacity additions planned there.
South is lined up to follow central and east regions thanks to higher targets under Bharatmala Pariyojana, sharper execution under PMAY-Urban, and boost from realty and irrigation projects.
North India is expected to witness moderate growth on a high base, but various infrastructure projects — roads, metros, dedicated freight corridors, etc — and pick-up in real estate will support growth in the region.
In the west, demand is projected to grow at a moderate rate in the near term after rebounding sharply last fiscal. This region has various high-budget infra projects under execution, such as the Mumbai-Ahmedabad bullet train, trans-harbour link, and metro projects in Mumbai. However, north, south and west, comprising industrialised states, already have the highest per-capita cement consumption, which will limit their demand growth potential and will lag the other two regions in the future.

ABOUT THE AUTHOR:
Hetal Gandhi, Director – Research, CRISIL Limited, is managing a team of over 20 analysts to track developments across infra and consumption space to know India’s role in this journey.
Koustav Mazumdar, Associate Director – Metals, Metallurgical Coal, Cement and Hydrogen,
CRISIL Limited.

Up Next

Supporting Technology with Regulation

Don't Miss

The Future Looks Green

Concrete

JK Cement marks 140 years of innovation and leadership

JK is one of India’s leading manufacturers of Grey Cement in India

Published

2 days ago

September 17, 2024

admin

JK Cement Ltd. a leading building material company, one of India’s leading manufacturers of Grey Cement in India and one of the largest White Cement manufacturers in the world, celebrated 140 years of JK Organisation’s remarkable legacy at a grand event in the capital. The event honoured the group’s rich history, its significant contributions to multiple sectors of the Indian economy, and the unwavering dedication of its employees and partners.

The celebration gathered dignitaries, industry leaders, employees, and key stakeholders to reflect on JK Organisation’s journey from its inception to its present status as a global leader. Lieutenant Governor of New Delhi, VK Saxena, who himself started his career at JK Cement, along with Rajeev Shukla, Member of Rajya Sabha, graced the occasion. Key leaders of the JK Organisation, including Dr. Nidhipati Singhania, Vice President, JK Organisation, Dr. Raghavpat Singhania, Managing Director, JK Cement, and Madhavkrishna Singhania, Joint MD and CEO, JK Cement, were present to mark this significant milestone.

CEO’s from various known business houses both Indian and Multinational companies across sectors graced the occasion.

Reflecting on the organization’s journey, Dr. Nidhipati Singhania, Vice President, JK Organisation, said, “As we celebrate 140 years of JK Organisation, we are filled with immense pride and gratitude for our legacy, which is rooted in values of innovation, quality, and service to the nation. Our journey has been as much about business success as about driving positive change in the communities and industries we serve. The milestones we have achieved reflect our continuous efforts in advancing India’s infrastructure and industrial landscape.”

One of the key highlights of the evening was the recognising the long-serving employees and partners who have dedicated decades to JKCement. Their enduring loyalty underscores JK Organisation’s foundational values of trust and collaboration, which have been pivotal to the organisation’s success.

Addressing the guests at the event, Dr. Raghavpat Singhania, Managing Director, JK Cement, said, “This year along with the 140 years milestone, also marks two significant milestones for us: 50 years of grey cement business and 40 years of white cement business, affirming our leadership in the industry. Our recent expansion into coal mining underscores our commitment to vertical integration and sustainable resource management. We are dedicated to not only adapting to the evolving landscape but also driving positive change and creating lasting value for all our stakeholders and the nation.”

Emphasising the company’s commitment to innovation and progress, Madhavkrishna Singhania, Joint MD and CEO, JK Cement, said, “Our journey has been marked by resilience, adaptability, and a constant drive to exceed expectations. We’re committed to leveraging cutting-edge technology and sustainable practices to not only maintain our market leadership but also to contribute significantly to India’s progress. The trust of our stakeholders and the dedication of our team members have been instrumental in our success, and they will continue to be the pillars of our future endeavors.”

The event celebrated JK Organisation’s visionary outlook, showcasing its commitment to sustainable growth, technological innovation, and its influential role in driving India’s economic advancement.

VK Saxena, Lieutenant Governor, New Delhi, who was invited as the Chief Guest said “It’s an honour for me to be part of this landmark celebration for a company where I started my career as an Assistant Officer in Gotan, Rajasthan and worked for 11 years in different capacities with its White Cement plant. This exposure gave me insights of a corporate working, faster decision making and team work, which has helped me throughout my various stints thereafter. I wish all the best to JK Cement for all their Future endeavors in Nation Building”

Concrete

Steel Ministry Proposes Rs.23.52 Lakh Crore for Decarbonisation

Steel Ministry unveils massive decarbonisation plan.

Published

3 days ago

September 16, 2024

admin

Decarbonisation Proposal:
The Steel Ministry has outlined a substantial Rs.23.52 lakh crore proposal aimed at decarbonising the steel industry. This initiative is part of the broader sustainability and environmental goals set by the Indian government.

Objective and Goals:
The primary objective of the proposal is to reduce carbon emissions significantly and enhance the environmental performance of the steel sector. This aligns with India’s commitment to climate action and green growth.

Investment Focus:
The proposal will channel funds into advanced technologies, energy-efficient processes, and renewable energy sources. Key areas of investment include electrification, hydrogen-based steelmaking, and carbon capture technologies.

Expected Benefits:
Implementing this plan is expected to lead to major reductions in carbon emissions, improve air quality, and contribute to sustainable development. It will also bolster India’s position as a global leader in green steel production.

Industry Impact:
The steel industry, being a major emitter of greenhouse gases, will undergo a transformation. This shift will require industry-wide adaptation and could influence global steel market trends.

Government Support:
The Indian government is committed to providing policy support, incentives, and regulatory frameworks to facilitate this transition. This includes subsidies for green technologies and research and development funding.

Timeline and Phases:
The implementation will be carried out in phases over the coming years. Short-term goals will focus on immediate emission reductions, while long-term goals will target more comprehensive technological advancements.

Stakeholder Involvement:
Collaboration with industry stakeholders, technology providers, and research institutions will be crucial. Engagement with local communities and environmental groups will also play a role in ensuring the success of the proposal.

Challenges:
The initiative may face challenges such as high costs, technological barriers, and regulatory hurdles. Addressing these challenges will be essential for the successful execution of the decarbonisation plan.

Future Outlook:
The proposal positions India as a key player in the global movement towards sustainable steel production. It sets a precedent for other sectors to follow and supports the country’s broader climate goals.

Conclusion:
The Steel Ministry’s proposal for a Rs.23.52 lakh crore decarbonisation plan represents a significant step towards reducing carbon emissions in the steel industry. With substantial investment in green technologies and strong government support, this initiative aims to drive sustainable growth and position India as a leader in environmental stewardship.

Concrete

New home prices in China fall 5.3% in August 2024

New home prices were down 5.3% from a year earlier.

Published

3 days ago

September 16, 2024

admin

Official data revealed that China’s new home prices had fallen at their fastest rate in over nine years in August, as supportive measures failed to induce a significant recovery in the property sector. The data showed that new home prices were down 5.3% compared to the previous year, marking the sharpest decline since May 2015, compared to a 4.9% drop in July, based on calculations by Reuters from National Bureau of Statistics (NBS) data. Monthly figures indicated that new home prices had fallen for the fourteenth consecutive month, decreasing by 0.7%, which was the same drop recorded in July.

The property market in China continues to struggle with deeply indebted developers, incomplete apartments, and declining buyer confidence, which is putting a strain on the financial system and threatening the 5% economic growth target for the year. A Reuters poll had forecast that home prices in China would decline by 8.5% in 2024 and by 3.9% in 2025 as the sector struggles to stabilise.

Zhang Dawei, chief analyst at property agency Centaline, mentioned that the property market is still gradually bottoming out, with home buyers’ demand, income, and confidence expected to take some time to recover. He noted that the market was anticipating a stronger policy response. According to the official data released on Saturday, property investment had fallen by 10.2% and home sales had dropped by 18.0% year-on-year in the first eight months of the year.

Chinese policymakers have stepped up efforts to support the property sector, including reducing mortgage rates and lowering home buying costs. These measures have partially revitalised demand in major cities, while smaller cities, which have fewer home purchase restrictions and high levels of unsold inventory, are particularly vulnerable. This situation underscores the difficulties faced by authorities in balancing demand and supply across different regions.

In a research note on Friday, Nomura indicated that with the growth slowdown worsening under new headwinds in the second half of the year, Beijing might eventually need to step in as the “builder of last resort” by directly providing funding to delayed residential projects that have already been pre-sold. According to Bloomberg News, China may cut interest rates on over $5 trillion in outstanding mortgages as early as this month.

To support these mortgage rate cuts, economists at ANZ suggested that a reduction in the five-year Loan Prime Rate was likely in September, along with a 20 basis point cut to the medium-term lending facility (MLF) and a 50 basis point cut to the reserve requirement ratio (RRR).