May 7: Continuing the robust demand growth seen in FY18, cement demand growth is expected to be 6.5-7.5% in FY19, according to CRISIL.
Quarterly analysis reveals that cement demand rose at14-16% in Q3FY18, fastest in more than 16 quarters. Significant pick-up in affordable housing and infrastructure activity on a very low base of FY17 propelled the demand growth.
“ We expect Q4FY18 to also post a healthy growth resulting in the year ending at 8-9% yo-y, a level last seen in 2009-10,” according to a CRISIL report.
In FY19, cement demand is expected to remain healthy and grow by 6.5-7.5%, led by affordable housing, rural IHB (indirectly supported by govt. rural initiatives) and infrastructure led activities especially in a pre-election year. Cement demand is expected to be driven by North and Central region with state governments in states such as Rajasthan and Madhya Pradesh, heading for elections in December 2018.
Over a five-year period, cement demand is projected to increase at 6-6.5% CAGR, led bypick up in affordable housing, rise in government spending on infrastructure activities, and healthy rural housing demand following expectations of normal monsoons. . At the regional level eastern states followed by central and north regions would see healthier growth with continued state governments focus on development.
Operating rates to reverse trend in FY18; increase further in FY19:
Aided by robust growth, operating rates are expected to reverse the stagnant trend observed for last few years and increase to ~72% in FY18. Likewise, in FY19 too, cement operating rates are expected to increase marginally, driven by healthy growth in demand. However, upcoming supply is expected to prevent any further sharper rise.
Over the long-term, CRISIL Research projects the industry’s capacity utilization toreach 77% by 2022-23 (average 75% over the next five years) with improvement in demand supply balance.
At a regional level, South has the lowest utilization rates at ~60% and continues to be a drag on pan-India utilization rates. With limited capacity additions, the region’s operating rate, which is hovering around 60%, is expected to gradually touch `70% by 2022-23.