Cement production likely to grow by 5-7% in FY20, prices to remain stable

Roads, urban infra and commercial realty to drive demand

Cement production in the country is likely to remain steady with total production expected to grow by 5-7 per cent during FY20. Roads, urban infrastructure and commercial real estate are seen as the key demand drivers for cement.

During 2018-19, cement production grew by 13.3 per cent to 337.3 million tonne (mt) against 6.3 per cent growth in FY18, the fastest growth in production of cement recorded in one single year over the last decade.

“Southern and eastern regions would continue to be the major regional demand drivers. Prices are expected to remain stable. Retail segment demand would be the key to strengthening of cement prices. Eastern region may witness strengthening of cement prices followed by western and central region”, according to a report of Care Ratings titled “Manufacturing & Service Industries: Review FY19 & Outlook FY20.”

Destruction due to cyclone Fani is also expected to drive demand in the coastal region of eastern states namely Odisha and West Bengal in Q1FY20, the report added.

It may be noted that the extremely severe cyclonic storm Fani, which made land fall in Puri, had caused widespread damage in Odisha.

In the last financial year, government’s thrust on development of urban infrastructure, roads & highways and ports, coupled with steady demand from real estate, especially segments like commercial realty, rural and affordable housing were the key demand drivers of cement.

“The institutional demand for cement (infra and real estate) remained strong during the year (FY19). Implementation of key projects across infrastructure segments like roads, urban infrastructure and rural by the government prior to General Elections led to strong cement demand. Cement volume growth from these segments of construction was strong across states like Uttar Pradesh, Madhya Pradesh, Delhi-NCR, Odisha, Bihar and Rajasthan etc”, the report stated.

Retail segment demand was strong in the southern states especially Kerala and Tamil Nadu as these states were affected by natural disasters that led to large-scale reconstruction in Q3 and Q4 of FY19. Demand from retail segment led to increase in prices of cement across these markets.

In other regions, especially northern and central, cement producers chose to partly pass-on increased costs of input materials like limestone, coke and coal, to consumers. A two to five per cent increase in 50-kg bags was reported across these regions.

“Overall capacity utilisation for the sector was around 71 per cent during the year (FY19), which is a positive for the sector and is expected to drive investments over the next three years”, the rating agency said in its report.