Cement: No steam

Stalled projects, cuts in funding, delayed approvals and a tanking economy rang warning bells for the cement industry when the fiscal year kicked off. Not a lot has changed in the final lap of the year, except domestic offtake shows even deeper signs of decline than earlier. In 10MFY24, total cement offtake rose 2.5 percent, primarily due to a 65 percent growth in exports—March and April numbers have been impressive. Meanwhile, the industry dispatched about 31 million tons of cement, roughly 4 percent lower than last year. Which is not good news considering dispatches were pretty lower during FY23.

In Apr-24, domestic offtake stood at 2.3 million tons, lowest since Jul-22, nearly 20 months ago. To illustrate, we estimated the monthly average of every year from FY17 and compared it till FY24. For the sake of consistency, we took the period 10M under consideration. The average monthly domestic offtake in 10MFY24 is 3.17 million tons which is only higher than the offtake in FY17, and much lower than FY18, FY21 and FY22 when demand was booming. This should be concerning not only because the monthly average for domestic offtake is at the bottom in the past six years, but also because during FY17, capacities were much lower too. In fact, the industry has raised capacities over the past few years, in hopes of demand ramping up.

Which it did for a few years, only to settle in another substantive lull. Whether that was accounted for as new investments poured in, it is unclear. That the industry expected new capacities to be absorbed and make good returns as cement manufacturers nabbed on the opportunity of subsidized financing (TERF anyone?) were two assumptions of which only one came true. The latter. The industry is still making decent money. Capacities however are evidently unabsorbed. As it stands, capacity utilization is at 54 percent in 10MFY24. Here’s the kicker: in 10MFY17—where monthly average domestic sales are lower than during the current fiscal year—capacity utilization was a substantial 87 percent.

Exports are saving the day, as much as they can. In Apr-24, exports were 21 percent in the sales mix, which is a first in more than three years. Total exports contribution during the 10M period is more tempered as some months have performed better than others. At 15 percent though, it is still higher than last year’s 9 percent. If exports lose steam, the industry would not have much to fall back on but wait for hard times to be over and begin anew. The industry is no stranger to that as boom-and-bust cycles in this country are as familiar as knocking on IMF’s door. Considering the demand scenarios, the financial performance of most cement companies is still enviable, in part owing to luck (lower coal prices) and in part owing to opportunity (prices have maintained favours) and preparation (investments in energy efficiency projects). More on this later.