Despite all its environmental hazards and negative marks on carbon footprint, presently there is no other building material that can challenge the supremacy of cement in the construction industry. India being the third large cement producer in the world, cement industry has occupied pivotal position in the economy, often the commodity’s demand trend giving prior signal about economy’s growth direction.
Lockdown 2.0 was milder
Though the industry turned out one of the best performances in the concluding quarter of last financial year and also started the new financial year on a positive note, euphoria died down soon as the country went into lockdown mode following revival of Covid cases in the country. Thus, the industry had to settle for second consecutive disastrous peak season though this time the impact was slightly milder than last year. Though the lockdown was for a shorter period, Monsoon that followed the relaxation in lockdown norms ensured that poor demand continued till the end of September.
Industry faced multiple challenges
During the first six months of the current financial year, the industry faced, apart from lockdown, several other problems. In Chhattisgarh, there was transporters strike which hampered movement of the commodity. Bihar, Rajasthan and some southern states faced sand shortage. Some states also faced floods due to heavy rains which in turn affected the construction activities.
Most of these problems were local in nature, but one factor affected all manufacturers alike across the country, that is, fuel cost spike. Sudden spurt in the coal prices post July 2021 put cement industry almost into a crisis like situation. However, with coal prices receding in November from their recent highs, a large overhang on costs for the cement manufacturers has been removed.
Indian cement manufacturers were under pressure, owing to the huge uptick in input costs. Coal shortages were also seen in India with reports of coal stocks hitting new lows at power plants and Coal India Ltd diverting all supplies to only power companies. With domestic coal unavailable, imported coal expensive beyond limits and petcoke being expensive with limited availability, cement companies were staring at fuel shortages or astronomical increase in costs.
Despite the input cost inflation which is expected to remain for some more time, the industry in general is optimistic about the prospects of the industry, not only in the long run but also in the second half of the current financial year. According to UltraTech, for example, recovery in rural housing, higher MSP for kharif crop, improved food grain production in rabi harvest, a third normal monsoon and pick-up in infrastructure-led construction activity are likely to drive cement demand off-take. Continuous increases in input costs like coal, pet coke and diesel pose a challenge for the industry. The company is confident of weathering the storm of increase in prices of coal, diesel and other inputs, with its sustainable efficiency improvement programs, accompanied by increase in selling prices to absorb the increase in costs.
Similarly, Ambuja Cement, a LafargeHolcim group company, is of the view that the domestic activity in India is on an improving trend with reduction in COVID-19 cases and supported by increased pace of vaccinations. “Government’s continued focus on capital expenditure and reforms to support growth augur well for domestic demand. Rural demand is expected to be buoyant backed by revival in agricultural activity. We remain confident that these will support cement demand in the medium term,” says the company.
Mr. Puneet Dalmia, Managing Director – Dalmia Bharat Limited, said, “Inspite of unprecedented cost related headwinds across regions, our razor sharp focus on operation efficiencies and execution has helped us contain our costs and deliver industry leading performance. As India’s economy continues to rebound from the lows of last year, we expect demand and pricing environment for the sector to improve for the rest of year.”
According to Birla Corporation, post monsoon, demand for cement has started to improve. “The Company has raised prices to partially pass on the increase in input costs. Taking advantage of an improved demand scenario, geographical mix of sales is being optimized again. Together. these measures are expected to improve net realization in the second-half of the financial year.”
FY21 demand was much better than anticipated, driven by rural demand and infrastructure spending by the government. Steady recovery in demand is expected to continue even in FY22. The second covid wave has affected cement demand in the first two months of FY22, but a gradual recovery from here on is expected especially in view of waning threat of the pandemic. Infrastructure demand is expected to be strong while rural demand momentum could be lower than what was witnessed last year given the lower MGNREGA spending by the government. However, for certain states and UTs like Maharashtra, Karnataka, Kerala, Tamil Nadu, Delhi etc. demand recovery is likely be muted given the significant impact of second covid wave.