The cement industry in India ended financial year 2008-09 on a strong note, despite the construction sector being sharply affected by the economic meltdown. This trend is expected to continue in the current financial year too. Moreover, cement production and consumption are expected to grow rapidly during 2009-12.

The cement sector recorded a 9.4% growth year-on-year in the fourth quarter (January-March) of 2008-09. Besides, in the first quarter (April-June) of 2009-10, the cement consumption increased 11% as against the corresponding period of 2008-09. According to a report by Cement Manufacturers’ Association (CMA), the Indian cement industry is expected to grow by 9-10% in the current financial year, provided GDP grows at the rate of 7%.

“The numbers are hard to ignore and clearly testify to the fact that the cement industry in India has managed to ward off the current economic downturn. Moreover, cement being a major raw material for the infrastructure and the construction segment, future prospects of the industry looks bright as the economy gathers steam,” opines P S Shivakumar, MD of A.P. Constructions, a mid-sized construction firm in Chennai.

Demand for cement to remain robust

The cement industry is expected to witness a strong demand over the coming years, due to the following growth drivers:

Increasing cement despatches: Cement despatches stood at 155 metric tonne (Mt) and 170 Mt in 2006-07 and 2007-08, respectively. In March 2009, cement despatches stood at 18.12 Mt, as compared to 16.42 Mt in March 2008. This reflects a 10.35% growth in cement despatches in March 2009.

Government impetus: Cement companies reported a strong demand growth in the third quarter (October-December) of 2008 primarily due to the government spending on infrastructure. Moreover, the slew of infrastructure projects announced in the Union Budget 2009-10 will definitely boost demand for cement during the current financial year.

Renewed realty interest: The real estate sector in India consumes more than 50% of the total cement produced in India, and this trend is expected to continue over the coming years, according to a report by RNCOS, a global market research company. After some difficult quarters, the realty sector is back on track with increase in affordable housing, lower interest rates and improved bank credit for the home loan segment. These will surely prop-up flagging sales in the realty market and in turn, enhance the demand for cement.

Rising installed capacity: In 2008-09, the cement industry witnessed a capacity addition of 23 Mt, which took the total installed capacity to 212 Mt. In 2009-10, the industry expects to add another 20-25 Mt capacity. This capacity expansion will be done in a staggered manner so that the market gets enough time to absorb the additional capacity. According to a report by the ICRA Industry Monitor, an independent and professional Investment Information and Credit Rating Agency, the Indian cement industry is expected to record an annual growth of 10% over the coming years. This, along with higher domestic demand, will increase capacity utilisation.

“Apart from the obvious growth drivers such as rising infrastructure spending and increasing affordable housing units, other factors such as declining coal prices, modern and eco-friendly technologies, good retail demand from semi-urban and rural areas will work wonders for the domestic cement companies,” says Vishal Pande, Director of Amte Realtors, a mid-sized real estate company in Patna.

In short, the heavy demand from sectors such as real estate, infrastructure and retail coupled with the government impetus will definitely give the Indian cement industry a quantum leap.

Jeeta Bandopadhyay