Cement demand expected to rise by up to 20% in fiscal 2022: Icra

Cement demand is expected to increase by up to 20 per cent in the next fiscal year with volume touching FY19-FY20 levels, rating agency ICRA said on Monday.

The growth would be supported by rural demand, including affordable housing, and recovery in infrastructure segment.

"ICRA expects cement demand to increase by 18-20 per cent in FY2022 over FY2021 with the volumes reaching back to around FY2019-FY2020 levels," the rating agency said in a statement.

The volume growth is also likely to support operating margins in FY22 at around 20 to 21 per cent, notwithstanding some cost-side pressures, it added.

Capacity additions are expected to get back to around 20-22 MTPA (million tonnes per annum) in FY2022 from around 15-17 MTPA in FY2021, it said.

The eastern region is likely to lead the expansion by adding around 15-17 MTPA capacity during the said period.

"With the revival in demand in FY2022 by around 20 per cent, the utilisation is likely to improve to around 64 per cent during the fiscal from the low levels of 56 per cent in the previous year...," it said.

On input costs, it said, while coal prices continue to remain soft, pet coke prices have increased in the recent months.

"Diesel prices also have increased in the current fiscal. Further, with pet coke and diesel prices linked to crude, the prices are likely to remain elevated," it said.

Going forward, coal price will remain sensitive to demand from China and India, and to the extent of change in the energy mix from coal to natural gas and renewables globally.

ICRA Assistant Vice President Anupama Reddy said rural offtake is likely to be supported by positive farm sentiment with timely rabi sowing and favourable groundwater and reservoir levels, which are likely to boost rabi yields.

"The traction in Pradhan Mantri Awas Yojana-Gramin (PMAY-Gramin) is expected to continue and PMAY-Urban has also picked up faster in recent months as against other housing segments owing to low ticket sizes and government incentives.

"Although urban housing has also seen a pick up in the recent months in select markets, the sustainability remains to be seen," she said.

In addition, the recent announcements, with focus on real estate, PMAY-Urban and infrastructure sector as part of the 'Atmanirbhar Bharat 3.0' package, are likely to support cement demand.

"On the infrastructure side, the pace of execution of projects in the transportation segment - roads, metros, railways and airports - is expected to aid cement volume expansion going forward," Reddy added.

According to the Cement Manufacturers Association (CMA), the total installed capacity in Indian cement sector is approximately 545 million tonnes per annum and it is the fourth-largest revenue contributor to the exchequer.

The Indian cement sector accounts for over 7 per cent of the global installed capacity and is the second-largest in the world after China, as per the CMA.