Cement sector defies slowdown

Alok Agarwal
5 October 2001

Mumbai: Has the cement industry bucked the recessionary trend that has dampened growth in other areas of the economy? Going by the industrys performance last month, this certainly does appear to be the case. The sector surprised analysts by posting a growth of 16.1 per cent in cement dispatches last month.

Output, at 8.3 million tonnes, also grew by 19.3 per cent as compared to 7 million tonnes in September 2000. Though volumes are moderate, forecasts point to healthy growth figures in the first half of fiscal 2002. Cement production rose 5.32 per cent to 49.5 million tonnes as against 47 million tonnes in the corresponding period last year.

Cement consumption has a direct co-relation with demand from the rural housing sector, which itself is dependant on a good monsoon. A moderate monsoon this fiscal, say industry sources, ensured a moderate demand - mainly from northern and western markets, and especially from large-scale construction activity in quake-hit Gujarat. The southern region, which saw prices weaken, witnessed a capacity addition of 5.56 million tonnes in the first half of the current year, which might partly explain the regions price sensitivity.

Says an industry source: Going by the governments keenness to focus on infrastructure, particularly roads, and the evergreen demand from the housing sector, cement should end up doing particularly well in the current fiscal. Demand from the rural sector also looks better than that of last years. So we expect a growth of around 8 per cent by the time the fiscal ends.

Estimates for the next fiscal point to increased demand from the rural housing sector. This bodes well for the cement industry. The governments decision to focus on improving infrastructure, which translates into increased investment in roads and allied projects, may also buoy the cement industrys hopes, which expects to grow by about 8 per cent by the time the fiscal ends.

The southern sector had seen a capacity addition of 5.56 million tonnes in the first half of the current year - a reason why prices there had remained a wee bit weak. Additions came from ACC (2 million tonnes), Madras Cement (1.3 million tonnes), Larsen & Toubro (1 million tonnes), Grasim (0.90 million tonnes) and India Cements (0.36 million tonnes). The fact that prices have firmed up in states like Tamil Nadu and Andhra Pradesh clearly point towards improved demand from southern markets as well.

Reflecting the buoyant mood, cement shares have also commenced their northward journey as reflected in their prices. Scrips of ACC, Grasim, Gujarat Ambuja Cements, L&T, Jaiprakash Industries and India Cements have bucked the general downward trend in the stock markets and have notched up gains. In fact, market analysts see cement stocks yielding good returns to investors over the next six months.