Business Standard

Cement industry growth rate hits 5-year lows

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The growth rate of the domestic cement industry has hit a five-year low, in terms of both production and despatches, in FY09. The industry registered a growth of 7.75 per cent and 7.91 per cent in production and despatches respectively.

The overall production during 2008-09, as per the provisional data available from the Cement Manufacturers' Association, was 181.35 million tonnes against 168.31 million tonnes last year. Despatches grew to 180.95 million tonnes compared with 167.68 million tonnes in the previous year.

Amrit Lal Kapur, managing director of Ambuja Cements, said, "It is a respectable performance by the cement industry in a scenario where other sectors have been affected by the slowdown. The industry has not performed too badly looking at the GDP. Moreover, the lower growth rate is also due to a large base that we had last year."
 

BASE EFFECT
Production and despatches data for the last five years
Year  Production 
(mntonnes)
Growth %
 (y-o-y) 
Despatches 
(mn tonnes) 
Growth % 
(y-o-y) 
2004-05 127.57 8.57 127.14 8.45
2005-06 141.81 11.16 141.57 11.35
2006-07 155.66 977% 155.26 9.67
2007-08 168.32 8.13 167.69 8.01
2008-09* 181.35 7.75 180.95 7.91
* Provisional figures, Source : Cement Manufacturers' Association

In 2003-04, the industry witnessed a production growth of 5.52 per cent and a despatches growth of 5.55 per cent. Since then, both the figures have remained above 8 per cent.

The lows of FY09 is despite the fact that March saw historical highs in production and despatches of over 18 million tonnes. The month outperfomed the other two months of the fourth quarter of FY09 by registering a production growth of 10.07 per cent and despatch growth of 10 per cent, the highest during the same month in the last three years.

The domestic cement industry has failed to keep pace with the production target set by the working group on cement industry for the current Five-Year Plan (2007-12). The industry produced 8.2 per cent less than the target of 197.51 million tonnes for 2008-09.

The working group had estimated the GDP growth rate at 9 per cent and cement demand growth at 11.5 per cent before setting the production target.

Interestingly, the industry could not even manage to meet the production target of 192.66 million tonnes, which was set considering the low growth demand scenario. Last year too, the industry could not come anywhere close to the target set by the working group.

Industry analysts said that growth rate of below 8 per cent was “in line with the expectation, which is going to fall further in the present financial year to around 6 per cent.”

Since, the cement industry growth is in tandem with the GDP growth with a factor of 1.2x, this decline in overall industry's performance was anticipated, they added.

The last fiscal saw demand slowing down to as low as 4 per cent in the month of October. Before that, it oscillated between 6 per cent and 9 per cent.

It was only in November that the growth factor set in and demand remained consistently above 8 per cent and rising up to as high as 12 per cent in December last year.

Amrit Lal Kapur, managing director of Ambuja Cements and a veteran in the domestic cement industry, told Business Standard, "It is quite a respectable performance of the cement industry in a scenario where other sectors are being affected by the slowdown in economy. The industry has not performed too badly looking at the GDP. Moreover, the less growth rate is also due to the large base that we had last year."

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