India's demand recovery delayed to second half of FY21

Growth of Indian cement demand fell short of expectations in Fiscal Year (FY) 2019-20 and no major recovery is expected until after the 2020 monsoon, according to analysts quoted in a report in the Business Standard.

The sector is expected to end both the calendar as well as the financial year with flat demand growth, which is well below expectations for 5 to 6 per cent growth forecasts at the start of the year.

“The general elections in Q1, and subsequently, heavy rains in most parts of the country had taken a toll on demand consumption and even the latter part of the calendar year failed to put up an impressive show,” explained Shailendra Chouksey, whole-time director for JK Lakshmi Cement.

Analysts at JP Morgan noted in a report issued on 22 November: “The cement sector is likely to see slow volume growth after two years of strong demand... Hopes of a second half (for FY20) recovery have been pushed out, given the muted award activity for roads/government programmes and persistent weakness in urban real estate construction activity.”

Indian cement prices have also been impacted by the sluggish demand growth, declining or remaining flat during the year to November, according to a report by JM Financials.

Meanwhile, capacity utilisation levels have been falling to an estimated 70 per cent in FY19, down from 80 per cent in FY09, according to YES Securities Research. Surplus capacity climbed to 156Mta in FY19, up from 38Mta a decade earlier in FY09.

However the medium-term outlook is more positive and utilisation rates are expected to climb back up to 80 per cent over the next four years, according to Chouksey.