Home Industry Trends 2020 was a roller coaster year for cement industry

2020 was a roller coaster year for cement industry

In the beginning of 2020 when Corona was still a China-centric health issue without having any bearing on rest of the world, Indian cement industry was in sweet spot. Growth was returning to the industry after a prolonged lull and prices too were moving northwards in tandem. In January (2020) alone price was hiked twice followed by another hike in February. Come March, things had taken a dramatic turn and the month was proved to be the most disruptive one, worse than the one seen during demonetisation.

Demand disrupted

Nationwide lockdown due to Covid-19 pandemic halted the demand recovery and led to substantial negative impact on March volumes. As a result, overall demand showed a decline of 12-13% in the fourth quarter of Q4FY20. Situation was slightly aggravated due to the fact that the lockdown announcement was sudden without any prior notice which led to inventory pile-up among the manufacturers. Overall FY20 volume is estimated to be down by 3-4% to 326-330MT. According to a CARE report, the domestic cement production has fallen by 38.3% during Q1-FY21 as compared with the 16.3% and 1% growth in production achieved during Q1-FY19 and Q1-FY20. However, things have started improving for the industry as indicated by continuous rise in the prices.

Initially small players performed better

In the January-March Quarter smaller players performed slightly better than the larger cement manufacturers. In-fact, market share of Pan India players and large regional players had slightly fallen to 72% from 73% in the same quarter in the previous year while that of small players had correspondingly gone up to 28% from 27% during the same period.

Impact on capex programs

One of the immediate effects of Corona-lockdown-led disruption was on the capex programs of some of the cement manufacturers. Most of the cement manufacturers decided to hold back their capex program pending clarity on demand trend. Ultratech decided to cap its capex spends to Rs 1,000 crore in FY21 as it deferred its expansion projects, underscoring their focus on conserving cash and deleveraging the balance sheet. It deferred capex for the Cuttack grinding unit to FY22.  ACC, a subsidiary of Lafarge Holcim, decided to re-evaluate its 5.9MTPA of expansion program. JK Lakshmi decided to put on hold its brownfield expansion plan of 2.5MTPA (1.5MTPA clinker). Birla Corp decided to delay its brownfield expansion at Kundanganj (UP) with a capex of Rs 250 crore while deciding to move ahead with the expansion at Mukutban (Maharashtra) with 3.9MTPA grinding capacity with 2.64MTPA clinker, which is expected to be commissioned by June 2021.

Rising fuel cost is a matter of concern

As the year progressed, especially towards end of the calendar year, the industry faced problem on another front, that is, fuel cost. Pet-coke price which had remained benign for most part of the year has started moving up. Also, oil price is on continuous upsurge for last few months along with which diesel price is also moving up. Upward movement in diesel price may impact the cement manufacturers logistic costs.

Enquiry by CCI

In December, the Competition Commission of India (CCI) initiated an investigation against many cement companies for alleged violations under Sec 3 of the Competition Act, 2002, which deals with the anti-competitive agreement or cartels. Several offices of the companies have been raided as part of this inquiry. It may be noted that under the Competition Act, 2002, the CCI has the power to levy a maximum penalty of a) 3 times of PAT for each year of continuance of the cartel or b) 10% of turnover, whichever is higher. It may be recalled here that in 2012, the CCI had imposed a penalty of Rs 6400 crore on cement companies for alleged cartelization. The SC stayed the order and asked companies to deposit 10% of the penalty amount.

Market leader’s capacity expansion plan

In a clear indication of changing fortunes of the industry, UltraTech Cement, the country’s largest cement maker, towards the end of the year, announced a Rs 5,477-crore investment to add 12.8 million tonnes (MT) capacity, taking its overall output to over 136 MT per annum. The latest round of expansion will reinforce the company’s position as the third-largest cement company in the world, outside of China. This expansion includes the existing approval for cement plant at Pali in Rajasthan, in addition to the existing 6.7 MT per annum capacity expansion currently underway in UP, Odisha, Bihar and Bengal. The expansion will get commissioned by FY22, in a phased manner.

Thus, the industry is entering the new year with some amount of uncertainty created by the CCI raids and also rising fuel cost. However, consumers can take a breather as another hike in cement prices may be ruled out, at least, for the time being.

Subscribe to our newsletter

To be updated with all the latest news from Sawdust




latest news