Stimulus package unlikely to boost cement growth

The economic stimulus package unveiled by the government on December 7 and the recent announcement by the public sector banks of cuts in interest rates on housing loans may not bring the country’s cement industry’s anticipated growth story on track, say sector analysts.

The 206.46-million tonne domestic cement industry, which enjoyed the longest profitable cycle during the current decade, has grown with a rate of below 7 per cent so far in the current financial year. The industry had anticipated the growth rate to be around 9-10 per cent.

“The fundamental status has not changed for the industry. For the next two years, cement industry will continue to see less growth rate,” said an analyst with a domestic brokerage firm.

The growth rate of cement industry is related with the gross domestic product (GDP) of the country. Normally, it is around 1.5- 2 per cent more than the GDP growth rate. “Already the GDP growth rates for FY09 is being talked about around 7 per cent or less and next year it is expected to come down below 6 per cent. In such circumstances, cement industry’s growth cannot be at or above 10 per cent,” said another expert.

The report of the working group on cement industry for the eleventh five year plan (2007-12) had pegged GDP growth at 9 per cent and cement growth at 11.5 per cent. According to industry analysts, “Stimulus package may only sustain growth and certainly not boost the industry.”

So far, amid slowdown in auto, gems & jewellery and other sectors, cement industry has not seen any de-growth yet with sales of cement on the upside. In the April-November period this year, the industry added over 8 million tonnes of capacities. The despatches during the period stood at 114.68 million tonnes against 107.31 million tonnes last year, up 6.87 per cent.

In November, cement despatches recorded a growth of 11.11 per cent — the highest monthly growth in FY09. According to the latest data released by the Cement Manufacturers’ Association (CMA), the despatches, including exports, stood at 14.43 million tonnes in November against 12.98 million tonnes during the corresponding month last year.

The increase in despatches, according to analysts, is primarily due to the low base caused by the festival season in November, 2007. However, they added that since cement makers have cut the price of cement by around Rs 4-6 per 50 kg bag following the 4-per cent reduction in excise duty, the growth does not seem sustainable for long.

The industry saw its despatch growth dip to below 4 per cent twice since April. The production in November stood at 14.34 million tonnes (less than the despatches) against 13.15 million tonnes last year, up 9.05 per cent.