Despite an inactive market, and uncertain demand dynamics within the construction industry, cement off-take took off by 11 percent in 5MFY24. This ought to be encouraging, except the bulk of this growth comes from a substantial recovery in exports compared to last year. In the five-month period to the fiscal year, cement exports have doubled versus last year. At this time last year, exports contributed about 9 percent to the sales mix. Now, exports hold about 16 percent of the market pie (read more: “Cement: Fresh strategies, Dec 11, 2023); one that is fast shrinking. So subdued is demand in the domestic market that sales for cement manufacturers were up only 2 percent in the July to Nov period from last year’s fairly dismal base.

Average monthly offtake thus far in local sales is roughly 3.34 million tons, which is only slightly higher than last year’s 3.26 million tons but lower than four out of the past seven years (i.e. since FY17). The problem is the cement industry has brought in a fresh stream of new capacities online since FY17. By FY23, industry capacity to manufacture cement stood at 82 million tons; in FY17, this was about 48 million tons. At the time, the capacity utilization stood at about 85 percent.

In fact, FY23’s capacity utilization at 57 percent has been the lowest in two decades. This is the outcome of rather aggressive investment into new expansions (of which a portion comes from debt) in anticipation of a demand doom that never came to be. Perhaps, it will at some point, though it won’t be any time soon as the economy remains tethered to a forced slowdown.

Typically, companies tend to enter into price wars to get more cement offloaded and grab as much of the market share as they possibly can. But this year, they have chosen not to go down that rabbit hole fearing they would lose more than they could possibly gain as their faith in domestic demand falters. One might believe they are forgoing volumes and making up through elevated prices; but as argued in this space before, perhaps, market intelligence suggests there isn’t more demand to be had, even at reduced prices. So far, not going soft on pricing has worked.

Instead of lowering prices, companies are focusing on cost minimization by making prudent investments in captive power generation that have yielded significant cuts in energy costs, while reducing dependence on expensive grid electricity. They are keeping a keen eye on coal prices and procuring a mix from multiple sources to optimize on those pesky costs. Other companies are spreading their wings and expanding their outreach by targeting newer export markets that seem viable and ripe for the taking.

Corporate briefings for most companies suggest the slumber in November will continue well into the fiscal year. As cement buyers hibernate, it would be best for cement players to keep prices stable and looking up as long as they can.