Cement: Not enough!

Sluggish domestic construction would suggest very little cement is sold in the market. Numbers indicate such an assertion would not be inaccurate. Domestic offtake for the cement industry during the first half of the fiscal year (1H) has grown by a mere 1 percent compared to last year. But exports more than made up for it. Doubling since last year, cumulative exports took the total offtake for 1HFY24 up almost 10 percent, now chipping in 15 percent to the sales mix, versus last year’s 8 percent.

The export growth is not baffling—some companies have worked hard to explore and reach new markets while others have utilized the advantages accrued from rupee depreciation and coal cost optimization. Though capacity utilization is at undesirable levels below 60 percent, exports have provided the necessary cushion to the blows thrown by domestic markets.

Ballooning costs of construction—of which cement prices have certainly contributed their part—have proven to be a deterrent to demand. The recent implementation of the axle road regime has further sent prices hurtling forward as transport costs go up. This is unlikely to ease over the next couple of months which will keep prices steady and looking up. Inflation has likely suspended plans for many to begin new constructions while ongoing projects may be overrun with cost escalations. This is not to say there is no demand in the market at all.

By the halfway point into the fiscal year (FY24), the average monthly cement offtake in local markets is lower than in three out of the past seven years (since FY17). That’s not entirely hopeless since FY24 is still ahead more years than it is behind (see graph). The only concerning fact here is that though the FY24 average monthly offtake is higher than last year and those during FY17-FY19, capacities have doubled in this time. Companies have spent substantial sums of money (including debt) to expand their production capacities in anticipation of a massive construction boom. While that never-boom was a bust, companies now have to contend with large capacities for which there isn’t enough demand. This has sprung some companies into action as they become more proactive about exporting their product abroad, but others still have to catch up. For now, pricing power and coal efficiencies have kept most companies financially upright, but if demand falters more, fortunes could easily turn sour.