India's cement production to fall 25-30% in FY21 as Covid-19 saps demand

Due to bleak outlook and unfavourable business conditions, cement companies are unlikely to make fresh additions to existing Capex (Capital expenditure) as demand stays muted.
Cement production in the country is slated to fall by 25-30 per cent this fiscal as Covid pandemic has sucked demand from end user industries. This is billed as the steepest fall for the industry in any year. Capacity utilisation in FY21 is seen at 40-45 per cent.

Even before the onset of Covid-19, cement producers were wrestling with an economic slump. In the last fiscal, cement output fell by 0.8 per cent as against a growth of 13.3 per cent registered in FY19.

“The cement industry was already impacted by the general economic slowdown prevalent in the economy and now with the Covid-19 pandemic prevalent, it has further added on to the weakness present in the industry even though the macros seem strong in the long term. Cement production is usually closely in-line with demand which is also poised to fall sharply given the lockdown related restrictions present as the virus is showing no signs of abating. The nationwide lockdown has come at the time when construction activities is at its peak and it will be followed by the monsoon season where again the construction activity will be impacted thereby affecting entire dynamics of demand-supply for cement”, said a report from CARE Ratings.

After easing of lockdown curbs, cement manufacturers have resumed operations. However, due to limited manpower availability and logistics constraints, the plants are running at depleted capacity. Logistics and transportation continue to be a stumbling block as priority of Railways is on transporting essential goods.

Due to bleak outlook and unfavourable business conditions, cement companies are unlikely to make fresh additions to existing Capex (Capital expenditure) as demand stays muted. Besides, some of the players are likely to defer Capex spends.

Flagging demand in the domestic market has unnerved cement makers as India is the world’s second-largest cement market, both in production and consumption.

“Weakness in housing demand, prolonged rains in many parts of the country and decline in demand from the infrastructure segment due to lack of funding and halting/temporary stoppage of state projects following change in government post state elections has had a negative bearing on the production of cement in the domestic markets. The outbreak of the Covid-19 pandemic in the Indian sub-continent which forced the government to announce a nationwide lockdown from March 25 onwards also affected the domestic cement production during FY20. Construction activity across the country was halted, which is normally at its peak in the month of March, affected the cement offtake. Production fell by 24.7 per cent during March 2020 as compared with the 15.7 per cent growth achieved during March 2019”, the report added.

As per the Cement Manufacturers Association, India accounts for eight per cent of the world’s installed capacity. The nameplate capacity of cement manufacturers has increased at a Compounded Annual Growth Rate (CAGR) of 7.1 per cent during FY16-FY20. Manufacturers maintained a capacity utilisation rate of 65-70 per cent between FY15 and FY19. But prolonged rains and government-enforced nationwide lockdown shrunk the capacity utilisation rate from 70 per cent in FY19 to 61 per cent in FY20.



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