Cement demand growth likely to bounce back from Q4 FY18: ICRA

31 Oct 2017 Evaluate

Domestic credit rating agency, ICRA in its latest report has said that cement demand growth is expected to bounce back from Q4 FY18 (January - March) after weak offtake in the first half of the current fiscal ending September (H1FY18) due to several factors such as weak real estate activity, sand shortage and Goods and Services Tax (GST) implementation issues. Based on current trends, it expects that the demand growth is likely to be driven by a pick-up in the housing segment - primarily affordable and rural housing, and infrastructure segment - mostly road and irrigation projects. However, it said that subdued real estate activity and sand unavailability in few states is expected to delay the cement demand recovery to Q4 FY18.

From the profitability perspective, the rating agency stated that the industry’s ability to maintain cement prices remains critical, given the expectations of higher power, fuel and freight costs in this fiscal. According to the report, during five-months of FY2018, the cement production reported de-growth of 3.2% to 117.3 million MT when compared to 121.2 million MT during 5M FY2017. It also noted that while in May 2017, production reported growth of 6.7% on a month-on-month (M-o-M) basis to 24.8 million MT, it declined by 1.5% and 7.2% in June and July 2017 on an M-o-M basis to 24.5 million MT and 22.7 million MT respectively. It added that monsoons impacted the demand in August-September 2017 across various regions and this resulted in a decline in demand by 3.1% on M-o-M basis in August 2017.

On the pricing front, the report indicated that despite adverse impact on cement prices across various regions, they continue to remain higher than traditionally what has been witnessed in the monsoon impacted Q2s till FY2016. It noted that pet coke prices continue to remain firm and are higher by around 12-15% in Q2 FY2018, compared to Q2 FY2017. It also mentioned that cement demand remained subdued across the country due to various local issues - in the North, especially in the states of Uttar Pradesh and Punjab the offtake has been impacted by sand shortage and labour unavailability, while in the West the implementation of the Real Estate Regulatory Authority (RERA) Bill resulted in construction activity slowing down.

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