Cement demand growth set to halve this fiscal

Market research agency Crisil expects cement demand growth to witness a mid-cycle slowdown to 5-5.5 per cent year-on-year this fiscal, down sharply from 12 per cent in fiscal 2019. Growth would be lower compared with even fiscal 2018, when it had printed 9 per cent.

Demand growth will bear the brunt of weak government spending in first half, which contributes to nearly 35-40 per cent of cement demand and liquidity crunch impacting real estate market which consumes 5-8 per cent of cement demand. Other external factors such as election-related labour shortage, sand and water availability in key states further accentuated the issue in first quarter of current fiscal. 
Indeed, in the first quarter, pan-India cement demand growth had contracted by (2 per cent), with the east and north logging a contraction of (4-5 per cent) and (0.5-1.5 per cent), respectively. Shortage of water and sand, and the impact of cyclone Fani had weighed on structurally weak demand factors in Bihar, Odisha and West Bengal in the east. Further funding challenges stalled various institutional projects in Andhra Pradesh and Telangana in the south.
Says Prasad Koparkar, senior director, Crisil Research, “Growth in the second half will be better at 8-10 per cent on a weak H1 led by gradual pick up in govt’s fund release for institutional projects post higher dividend pay-out and one-time reserve transfer from RBI to government. Delayed, yet healthy, monsoons shall augur well for rural housing demand. While west and central regions shall post healthy growth of 5-6 per cent in current fiscal, south and east shall be weak at 2-4 per cent on high base of past year and constrained spending by state government.”