Infrastructure projects lead to shift in Indian cement demand

The Indian government’s infrastructure drive is leading to a shift in demand for cement. The last few years have seen cement demand for the infrastructure sector advance by five per cent with the share of the housing sector in total cement consumption falling, according to the Business Standard.

Infrastructure now accounts for 20 per cent of cement demand, according to HM Bangur, managing director at Shree Cement. “State and central government road projects and other infrastructure like ports have spurred demand for cement,” Mr Bangur added.

The shift has also been noted by other players in the cement industry. “Infrastructure and low- income housing segments have been eating into the share of rural and urban housing. Clearly, the cement industry in India is institutionalising,” said Atul Dagga, executive director and CFO at UltraTech Cement.

Moreover, they see it as a permanent change with infrastructure’s share increasingly advancing. “One can look at infrastructure contributing to 30-35 per cent of the total demand in the next five years or so,” said Shailendra Chouskey, whole-time director at JK Lakshmi Cement.“In a developed economy, the share of infrastructure in cement consumption is larger than the share of housing. It can be as high as 70-80 per cent.”

The shift is expected to lead to changes in cement distribution. “Movement of bulk cement (required for infrastructure) by road has certain constraints and hence is not economically viable for longer leads (distance between plant and market). However, with expansion of grinding unit network, lead distances are shrinking and the share of bulk cement is gradually going up,” Mr Chouksey said.

In addition, institutional buyers are also predicted to raise the bar in terms of competitiveness. While cement companies stand to gain on logistics cost, increase in infrastructure demand makes margins dearer. “Selling to institutions is certainly more competitive and less price remunerative as compared to selling in retail. But the cost of selling is lower,” Mr Chouksey added.