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Cement sector to remain buoyant on housing demand

Cement sector to remain buoyant on housing demand
Highlights

The domestic cement demand is expected to be at 7 per cent in FY2019 and around 8 per cent in FY2020, driven by housing, primarily rural housing and...

Mumbai: The domestic cement demand is expected to be at 7 per cent in FY2019 and around 8 per cent in FY2020, driven by housing, primarily rural housing and affordable housing and improved focus on infrastructure segments like roads, metro and irrigation projects, rating agency Icra said.

The agency estimates around 15-18 MTPA to get added in FY2019-FY2020. "The domestic cement capacity utilisation is expected to remain moderate at around 70 per cent in FY2020 despite an estimated demand growth of 7-8 per cent in FY2019-FY2020 due to capacity overhang. This is likely to continue pricing pressures thereby leading to pressure on margins," it said.

Noting that all the new supplies are not fully integrated, and most capacity additions are backed by old limestone mining leases, it added that the grinding capacity addition is higher in relation to the clinker capacity, based on the clinker conversion ratio and, thus, the actual production from new capacities is likely to be lower.

"While the incremental demand of around 22-26 million MT is greater than the incremental supply, the capacity overhang is likely to keep the utilisation at moderate levels, 67 per cent in FY2019 and 70 per cent in FY2020," it said.

Icra observed that there has been some correction in the pet coke prices from August 2018 onwards. The easing in pet coke prices in the recent months is likely to reduce some pressure on the power and fuel costs in Q3 of FY2019 on a quarter on quarter basis.

However, on a year on year basis, there is a possibility that the power and fuel prices could continue to remain higher," it said.

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