In spite of the core statistics for May showing a marginal growth in the cement sector — barometer of economic activity — it continues to be under pressure. Against the sector’s expectations to re-conquer the growth rate of double-digit, industry mandarins say it will take two years to show growth. The latest update from the government on growth of core sector for May puts cement production growth at 2.6 per cent against a contraction of 2.4 per cent in the immediate previous month. Though it’s positive for the sector, it is too little to rejoice since in the corresponding month last year, the growth was to the tune of 8.4 per cent. Industry executives say that May was slightly better and expect a repeat of the same in June. But, they continue to believe the current financial year may see not more than five per cent growth. ALSO READ: Coal India goes on a production overdrive to fuel economy H M Bangur, chairman & managing director, Shree Cement, said, “A growth of 2.6 per cent is not much when India’s GDP growth is being put at seven per cent. At least a growth equivalent to the GDP is needed.” Bangur says May saw a healthy growth and June will be much better. “I think, the month should see a growth of four to five per cent as demand is expected to pick up,” he added. But experts say growth in June may remain two to three per cent. Taking into account June’s four per cent growth, the growth during April-June quarter will be less than 1.5 per cent - not the growth curve the sector would like to stay with. This is not only one of the lowest quarterly growths, especially, in the peak construction phase, it’s much lower than what the sector clocked in the corresponding previous quarter at 9.53 per cent. But, if some experts are to be believed, the year could be a complete washout for the cement players as they do not see demand at more than three per cent in FY16. And if this happens to be true, the year will be the worst year thus far this century for the sector. ALSO READ: Power generation: More is not merrier To a sector, which is running at a capacity of 72 per cent with more than a 100 million tonnes of capacity lying unutilised, nothing but only a strong infrastructure push can help. However, despite the government’s intention to speed up infrastructure projects, the ground reality tells a different story. So far this decade, the cement industry’s growth has been ranging between four and seven per cent. The start of the previous year was strong as industry grew nearly 10 per cent in the first half of the fiscal. However, what followed later was a nightmare for cement companies as growth fell to 4.5 per cent in October-December quarter and further slipped to less than two per cent in the fourth quarter. Global brokerage firm Morgan Stanley, in its latest India Cement report, has revised down its FY16 earnings by 10-12 per cent and FY17 earnings by 8-13 per cent on the back of lower volumes and cement price assumptions. “ In the last few months, cement demand growth has been muted, including year-on-year (y-o-y) declines in March and April, which we believe was primarily driven by slowdown in government spending in March, given the focus on fiscal deficit for FY15. However, as per our channel checks, demand has marginally recovered in the last few weeks, as evidenced by the three per cent growth in May, after the declines in the preceding two months,” the report added.
Pricing of cement has been a persistent issue with the industry for the last few years. Due to stark mismatch between demand and supply, the all-India average price of a 50 kg bag of cement has slipped below Rs 300. On the ground, no demand for the building commodity - be it from housing, road or industrial projects. This is reflecting on the falling prices of cement thus far this financial year. For instance, the current all-India average cement price is ruling at Rs 289 for a 50 kg bag against Rs 293 a year earlier. During the March-end, the prices ruled at Rs 302. “Prices had seen a steep increase in the quarter ending March, on expectations of demand rise. However, it could not sustain as demand failed to pick up,” said Piyush Jain, a research analyst at Morningstar India. He further added that first half of FY16 will be quite tepid and even in the third quarter there may not be a reasonable increase in demand. “We see initial sign of pickup in demand only in the fourth quarter of this financial year when orders for road projects and construction get translated into execution,” he said. Thus far this quarter, cement prices have declined by a little above four per cent to Rs 289 from Rs 302. With monsoon setting in, prices are only expected to weaken further as rains spread across the country by the first week of July. The northern market is witnessing a huge pressure on prices. The average retail price of cement in the region has slipped to Rs 227 a bag against Rs 262 in the March quarter. The current prices being quoted in the West is Rs 279 (Rs 307 in March) and in East it is Rs 316 (Rs 314). The southern region is commanding the highest cement prices at Rs 368 (Rs 371), while the prices in central India is about Rs 247 (Rs 259). According to sector analysts, the situation is likely to improve only in FY17 when government-led projects are expected to be in execution mode.