On 01 February 2022, the Finance Minister of India, Smt Nirmala Sitharaman presented the eagerly anticipated Union Budget 2022. It comes at a time when the economy is still recovering from the devastating impact of the COVID-19 restrictions that had been imposed in the interest of the public, and as such, it was expected to make certain provisions for various industries in the country that would allow them to recover. Let’s take a look at some provisions that are expected to make an impact on the cement industry in India.
India is the second-largest producer of cement on a global scale with more than 7 per cent of the global installed capacity. Cement production reached 329 million tonnes (MT) in FY20 and is projected to reach 381 MT by FY22, driven by rural housing demand and the government’s strong focus on infrastructure development.[1]
Vimal Kejriwal, MD & CEO, KEC International Ltd., says, “I welcome the forward-looking, Capex-led Budget 2022, with a sharp 35 per cent increase in outlay. A strong focus on improving the safety of Indian Railways, faster implementation of metro rail systems, infrastructure status for data centers, along with an emphasis on PM GatiShakti with significant allocation towards Jal Jeevan Mission, Affordable Housing, BharatNet, and building 100 Cargo Terminals for multimodal logistics facilities augur well for KEC International Ltd. and our well-diversified businesses.”
It should be noted that India is still a developing country with tremendous improvements in infrastructure planned as of now. Infrastructural developments require cement as one of the primary raw materials, along with steel, coal, and other allied industries; and any expenditure or incentives for expenditure from the government in the infrastructural development sector is a very welcome sign which indicates a significant amount of growth in the cement industry, in addition to growth in these allied sectors such as coal, steel, aluminium, and mining. From this perspective, the Union Budget 2022 has been a blessing as it has made provisions for the following expenditures in infrastructural development [2]:
Government Scheme
Budget Estimates 2022-2023(INR crore)
National Highways Authority of India
1,34,015
Road Works
64,568
PM Awas Yojana
48,000
Metro Projects
19,130
PM Gram Sadak Yojana
18,000
Urban Rejuvenation Mission: AMRUT and Smart Cities Mission
14,100
Compensation to Service Providers for creation and augmentation of telecom infrastructure
9,000
National Investment and Infrastructure Fund (NIIF)
5,003
National Capital Region TransportCorporation
4,710
Member of Parliament Local Area Development Scheme (MPLAD)
3,965
Police Infrastructure
3,919
Border Infrastructure and Management
2,745
National Industrial Corridor Development and Implementation Trust (NICDIT)
1,500
North East Special Infrastructure Development Scheme (NESIDS)
1,419
Infrastructure facilities for Judiciary
858
Infrastructure Development and Capacity Building
588
Border Area Development Programme
566
Other Programmes including Railway Infrastructure
96,314
Total
4,28,400
As can be seen from the above table, a massive Rs 4,28,400 crore is expected to be spent for the purpose of infrastructural development in the upcoming financial year. A majority of these developments are concerning roads and transportation facilities in the country, however, schemes like the PM Awas Yojana, AMRUT[3], and Smart Cities Mission also incentivise residential infrastructural developments and give a boost to the real estate market. With the introduction of programmes such as the PM Gati Shakti, which aims to bring together Ministries related to transport (roads, railways, etc), we can expect a much more efficient planning system that may further increase the demand in the industries related to infrastructure, leading to even more growth.
One essential part of the Indian economy is the railway network. The railways present a special income and expenditure profile in the budget[4]. In 2022-23, the total expenditure on the Indian Railways is expected to be Rs 4,73,440 crore. While a lot of this amount goes towards the operating expenses of the railways, a significant percentage of it also goes towards infrastructural development which is undoubtedly a blessing for the cement industry.
Driving India ahead
Budget 2022 also makes provisions for improving the ease of doing business in India. Kejriwal further adds, “Initiatives such as the use of Surety Bonds as a substitute for bank guarantee, a cap on Surcharge of AOPs consortiums at 15 per cent as against 37 per cent earlier and an end-to-end online e-Bill System to enhance transparency are steps in the right direction for EPC contractors.”
While expenditure in the infrastructure, transport, and real estate sector from the government is sure to cause these sectors to grow, expenditure from individuals is also a key driving factor in the real estate sector. Individual customers would have greatly appreciated some form of tax benefits on home loans, which could have led to growth in the residential real estate sector, which also benefits the cement industry in addition to industries such as steel, home electronics and appliances, and many more. The middle class has also not received any reduction in the income tax, meaning that these individuals will be hesitant to make large investments such as real estate at the moment as well.
In conclusion, the new budget seems to be very beneficial for the cement industry, along with various other allied industries which play a role in construction and infrastructure. Budget 2022 promises tremendous developments in the public infrastructure and transportation in India, and development in these sectors is expected to lead to further development throughout the economy in the foreseeable future. Additionally, ease of doing business is also expected to improve with provisions such as the end-to-end online e-bill system. However, it is not only the government and large companies that form the market but also the individuals, and it would be very helpful for the industry if the government makes provisions for them.
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.
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).
India’s cement sector is set for further consolidation in the near-to-medium term, according to a recent report. With increasing competition, rising input costs, and the need for economies of scale, companies are expected to explore mergers and acquisitions (M&A) to strengthen their market positions. As the industry faces various challenges, including high energy costs and fluctuating demand, consolidation is viewed as a strategic move to drive growth and sustainability.
Key Points:
Market Consolidation: The Indian cement industry has already witnessed significant consolidation over the past few years, with several large firms acquiring smaller players to enhance their market share. The trend is expected to continue, driven by the need to optimize operations, cut costs, and gain better pricing power. Consolidation helps companies to expand their geographic reach and strengthen their portfolios.
Rising Costs and Challenges: One of the primary drivers of consolidation is the rising cost of inputs, particularly energy and raw materials. With costs of coal and petroleum coke (key energy sources for cement production) soaring, companies are looking for ways to maintain profitability. Smaller and medium-sized players, in particular, find it challenging to cope with these rising costs, making them more likely targets for acquisition by larger companies.
Economies of Scale: Larger cement companies benefit from economies of scale, which help them absorb the impact of rising input costs more effectively. Consolidation allows firms to streamline production processes, reduce operational inefficiencies, and invest in advanced technologies that improve productivity. These efficiencies become critical in maintaining competitiveness in an increasingly challenging environment.
M&A Activity: The report highlights the potential for more mergers and acquisitions in the cement sector, particularly among mid-sized and regional players. The Indian cement market, which is highly fragmented, presents numerous opportunities for larger companies to acquire smaller firms and gain a foothold in new markets. M&A activity is expected to accelerate as firms seek growth through strategic alliances and acquisitions.
Regional Focus: Consolidation efforts are likely to be regionally focused, with companies looking to expand their presence in specific geographic areas where demand for cement is strong. Infrastructure development, government projects, and urbanization are driving demand in various parts of the country, making regional expansions an attractive proposition for firms looking to grow.
Impact on Competition: While consolidation may lead to a more concentrated market, it could also intensify competition among the remaining players. Larger firms with more resources and market reach could dominate pricing strategies and influence market dynamics. Smaller firms may either merge or struggle to compete, leading to a reshaping of the competitive landscape.
Demand Outlook: The near-term outlook for the cement industry remains uncertain, with demand being influenced by factors such as construction activity, infrastructure projects, and government initiatives. The report notes that while urban demand is expected to remain stable, rural demand continues to face challenges due to slow construction activities in those areas. However, the long-term outlook remains positive, driven by ongoing infrastructure developments and real estate projects.
Sustainability Focus: Companies are also focusing on sustainability and environmental concerns. Consolidation can provide larger companies with the resources to invest in green technologies and reduce their carbon footprint. This focus on sustainability is becoming increasingly important, with both government regulations and market preferences shifting toward greener production practices.
Conclusion:
The Indian cement industry is poised for further consolidation in the coming years, driven by rising costs, competitive pressures, and the need for economies of scale. M&A activity is likely to accelerate, with larger firms targeting smaller and regional players to strengthen their market presence. While consolidation offers opportunities for growth and efficiency, it could also reshape the competitive landscape and influence pricing dynamics in the sector.
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