Cement demand likely to witness modest growth in FY2018: ICRA

ANI | Updated: Dec 05, 2017 17:10 IST

New Delhi [India], Dec 5 (ANI): Credit rating agency ICRA has said that domestic cement demand is expected to register a modest growth of ~1 percent in FY2018 on the back of a rebound in cement demand from Q4 FY2018 as against the earlier expectations of Q3 FY2018.

As per the note shared by the agency, the cement off-take has hitherto continued to remain weak in H1 FY2018 and also in October 2017 because of factors such as weak real estate activity, sand shortage and GST implementation issues.

"Going forward, 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, new project announcements from the private sector continue to remain weak and revival of public-private partnership is crucial to improve the pace of infrastructure development," said senior vice president and group head ICRA Ratings, Sabyasachi Majumdar.

During 7M FY2018, cement production witnessed de-growth of 1.6 percent to 165.6 million MT when compared to 168.3 million MT during 7M FY2017. Production declined by 3.3 percent in Q1 FY2018 and by 0.4 percent in Q2 FY2018 on a Y-o-Y basis.

Demand during Q1 FY2018 was adversely impacted due to various local issues across regions - in the North (especially in the states of UP and Punjab) the off-take was 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.

In the South, Tamil Nadu and Kerala were hit the most as demand got affected because of sand shortage, drought (impacting rural off-take) and weak housing activity. During Q2 FY2018, GST transitional issues, the monsoons and continued sand unavailability impacted demand.

Despite the adverse impact on cement prices across various regions due to subdued demand, in most markets, they continue to remain higher than traditionally what has been witnessed in the monsoon impacted Q2s till FY2016. In the southern markets, the prices are on the lower side by around Rs. 10-15/bag in H1 FY2018, compared to H1 FY2017.

"The recent pet coke ban in a few states is likely to result in cement producers shifting to high cost alternative fuel, i.e., coal which is likely to increase the fuel costs. From the profitability perspective, the industry's ability to maintain cement prices going forward remains critical, given our expectations of higher power, fuel (increase in coal and pet coke prices) and freight costs (increase in diesel prices) during FY2018," added Majumdar. (ANI)