Domestic cement demand has continued to remain weak in FY2018 due to various factors like weak real-estate activity, sand shortage and issues related to implementation of GST. According to an ICRA note, the cement off-take continued to be weak in 8M FY2018 and showed only a marginal increase of 0.5% in November 2017 on an M-o-M basis at 24.1 million MT. Based on the current trend, cement demand is likely to report a modest demand growth of around 2% in FY2018. Though cement demand registered a Y-o-Y growth of 17.3% in November 2017, this was primarily due to the base effect arising out of low production of 20.5 million MT in November 2016, the month when demonetisation of higher-value currency was announced. 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 – primarily 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. During 8M FY2018, cement production witnessed a marginal growth of 0.6% at 190.0 million MT compared to 188.8 million MT during 8M FY2017. Production declined by 3.3% in Q1 FY2018 and by 0.4% in Q2 FY2018 on a Y-o-Y basis. During Q1 FY2018, demand was adversely impacted due to various local issues across regions. In the North (especially in Uttar Pradesh 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 worst hit as demand was affected due to sand shortage, drought (impacting rural off-take) and weak housing activity. During Q2 FY2018, GST implementation issues, monsoons and continued sand unavailability impacted demand. A pick-up in the affordable and rural-housing segments and infrastructure – primarily road and irrigation projects – is likely to help improve the cement demand growth to 4-5% in FY2019. However, ICRA expects the capacity overhang and moderate demand growth to continue to keep the industry’s capacity utilisation level between 60 and 65% over the medium term.
