Home Industry Trends These issues may keep the building materials industry busy in 2021

These issues may keep the building materials industry busy in 2021

Most of the economic indicators and the latest GST collection figures show that worst is behind us and year 2021 will be a year of growth revival. While most part of the year will be focused on Covid vaccine and its administration, building materials industry is likely to be busy dealing with several issues affecting the industry which will have an impact on the industry in the coming years.

Some of these issues are:

Will cement industry be able to come out of CCI enquiry unscathed?

In December, 2020, the Competition Commission of India (CCI) initiated an investigation against leading cement manufacturers 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 were 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 though the order was later on stayed by the Supreme Court. However, if the past experience is any indication, the investigation and final decision by CCI may not be concluded soon and may go on for several months or even years. Also, analysts believe that CCI investigation stick may not be enough to deter the cement manufacturers from raising the price in future.

Will PLI help HVAC industry to grow?

In November last year, the government introduced the Production-Linked Incentive (PLI) Scheme in 10 new sectors, including air conditioners and LEDs for enhancing India’s manufacturing capabilities and enhancing exports – as part of Atmanirbhar Bharat programme. According to the government, air conditioners and LEDs have very high potential of domestic value addition and making these products globally competitive. A PLI scheme for the sector will lead to more domestic manufacturing, generation of jobs and increased exports.

According to available information, the scheme has generated curiosity in HVAC industry with many manufacturers including some foreign brands showing interest in the scheme. However, it may take much longer time for the scheme to materialise at the ground level and year 2021 will be crucial for the scheme to take off.

Will tile and MDF industry see mad rush to add capacity?

Tiles and MDF are the two categories of building materials which are seeing robust demand post relaxation of lockdown norms, though for different reasons. While tile makers (in Morbi region) seeing their plants operating at full capacity due to booming export demand, MDF is witnessing surge in order book due to increased demand from furniture makers and shifting consumer preference from entry level plywood to MDF. Also, MDF manufacturers are helped by the restriction on imports of MDF. Prospects for the MDF are brightened further with government planning to set up furniture cluster in the country and make India furniture hub.

However, surging demand which is keeping the capacity utilisation at near maximum capacity level may encourage the manufacturers of the materials to go for capacity expansion, a scenario which we had seen in not-too-distant past which had brought the prices of products crashing down. With the signals available now, especially in tiles industry, there are sufficient reasons to expect the repetition of the history.

Will water tank industry see increased capex?

Rs 5,000 crore plastic water tanks industry with a decent CAGR, is increasingly becoming an interesting battleground as some of the leading plastic pipe manufacturers are taking a plunge into the sector. Sintex which holds 50% of the organised market share is in deep financial mess thus presenting potential competitors an opportunity to grab the market share. For example, Prince Pipes has launched water tanks in the Gujarat market. On the other hand, Supreme Industries is already manufacturing and selling the products and also enjoys small market share. But the upheavals in the market have opened up opportunities for the company to re-chart its growth strategy. Astral Poly has acquired Aurangabad-based plastic water tank company Shree Prabhu Petrochemicals and has announced Rs 75 crore capex programme. Others too will have to loosen the purse strings as the plastic tank industry requires localised manufacturing facility to combat logistic challenges. So, one can expect increased capex in water tank business in the coming months.

Will material cost pose a problem for building materials industry?

If one factor that may keep haunting the building materials industry in 2021 is the raw material prices which are showing an upward trend after remaining benign for most part of 2020. Material costs have started rising when demand for the building materials seem to be stabilising. For cement manufacturers coal price is going up and diesel price is also not showing any signs of calming down. Resin prices are on upward move since the beginning of the third quarter much to the discomfort of the wood panel manufacturers. PVC prices have more than doubled since May lows. Natural gas price after being on downtrend for most of the 2020 has reversed its trend adding to the list of worries of the tile manufacturers. Movement in titanium dioxide prices has set the alarm bells ringing among the paint manufacturers. Metal prices are on the roll since last few months. Real estate manufacturers have already started complaining about the rapid rise in the cement and steel prices in recent months.

In general, the inflation rate is picking up indicating that we may be moving into a higher inflation rate regime. Increased cost of materials will be eventually passed on to the consumers which may also impact the demand sooner or later. So, inflation management may take substantial time of our economists in the government in 2021.

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