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Cement

Published on: Dec. 28, 2021, 4:07 p.m.
Cement demand sets to revive
  • Cement industry: expanding capacity for future demand; Photo: Sajal Bose

By Sajal Bose. Executive Editor, Business India

The second wave of Covid-19 had adversely impacted the domestic cement industry. But the sharp rebound in production was driven by pent-up demand in rural areas and an increase in infrastructure activities. Cement production accounted for 295 million tonnes in FY21 and is projected to reach 381 MT by FY22.

According to the rating agency ICRA, rural housing demand is expected to be supported by the robust kharif harvest and continued healthy procurement, supporting farm income. In infrastructure, the National Infrastructure Pipeline (NIP) is likely to see healthy traction in terms of new project awards and its execution in the medium term is expected to boost demand. The ICRA report also predicted that by FY22, cement production in India would increase by 12 per cent YOY.

“For the last two years, the government had prioritised healthcare management due to the Covid pandemic. This has now shifted to the nation’s infrastructure building. Therefore, the future looks encouraging for the cement industry,” explains Subhas Jajoo, CFO, Shree Cement. But he is apprehensive about whether the current financial year will match the record profit levels of the previous financial year.

India is the second largest cement producer in the world after China. But the per capita cement consumption is merely 200 kg as against the world average of 500 kg and China’s 1,750 kg. India is a growing country, and 25 million tpa would need to be added every year. The high quantity and quality of limestone deposits is an advantage for the industry. As per the Crisil report, the Indian cement industry is likely to add 80 mtpa cement capacity by 2024, the highest for the past 10 years. Several large players have announced capacity enhancement. The higher allocation for infrastructure – 34.9 per cent for roads, 8.7 per cent for metros and 33.6 per cent for railways in the budget estimates of FY22, is likely to boost cement demand.

The industry has made significant moves towards energy efficiency as well as fuel substitution, and has increased the percentage of blended cement to reduce clinker volume, lower costs and improve volumes. The segment has been taking pioneering initiatives to protect the environment and has integrated sustainability into its business practices.

Cement plays a key role in the development of the economy. Not only does it generate employment but it also contributes significantly to the country’s GDP. “Although cement is a high volume, low value product, it is one of the highly taxed commodities – even more than luxury goods. It is far higher than the other developing and developed countries,’ says Nikhil Saboo, senior analyst of SKP Securities.

Going forward, the eastern states of India are the untapped markets for cement companies and could contribute to their bottom line in the future. Significant grinding capacities have been built in the region and this has kept competitive intensity high among existing players. In the next decade, India could become the main exporter of clinker and grey cement to the Middle East, Africa, and other developing nations.

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