The government's push for the affordable housing and infrastructure segment is likely to support the cement demand in the medium term.

The cement industry globally has immense forward and backward linkages with a nation's economy. For a developing and transitioning economy such as India, the value proposition of the cement industry is even greater given the immense infrastructure requirements of a growing and urbanising country, as well as its contributions by way of direct and indirect employment.

Accounting for over 8% of the global installed capacity, the Indian cement sector is the second largest cement industry in the world and plays a binding and pivotal role in both the infrastructure and socio-economic development of the country; moreover, the Indian cement industry is the fourth-largest revenue contributor to the exchequer and the second- largest revenue contributor to the Indian Railways — it contributes nearly US$ 7.14 billion (INR 50,000 crore) per annum to government via taxes and levies, and about US$ 1.29 billion (INR 9,000 crore) per annum to the Indian Railways by way of freight revenue.In FY 2018, India held the second position in the global cement industry, with a production volume of 297.56 million tons in comparison to China's 2170 million tons. The cement industry in India is supported by high FDI. During the April 2000-March 2019 period, FDI in the cement and gypsum products industry was INR 369.38 billion.

The total Installed capacity in the Indian cement sector is approximately 545 million tonnes per annum, whereas 337 million tonne of cement was produced in 2018-19, signifying a capacity utilisation of around 62%. Dominated by domestic players, the Indian Cement Industry has been a first mover with regard to keeping pace with changing socio-economic and environmental paradigms, whether it is adoption of new technologies, adhering to stricter environmental standards or utilising other industries' waste produce.

Covid Impact

ICRA expects the cement demand to decline by 22%-25% in FY2021. ICRA however takes note of the fact that the rural segment has been relatively less impacted by the pandemic; and that the rural incomes may not be so impacted given likelihood of normal monsoons. Thus, we do not entirely rule out the possibility of a recovery in demand beyond what we are projecting at the moment.

“In ICRA's view, the capacity addition in FY2021 is likely to be around 14-15 million MT as against the earlier estimates of around 20 million MT. This is because most companies are likely to choose to go slow on capacity addition and preserve liquidity in face of demand slowdown. Some companies have already announced their plans to defer planned capex to an extent. Given the sharp contraction in demand, the industry utilisation levels are expected to decline to around 50% in FY2021 from 68% in FY2020, said Anupama Reddy, Assistant Vice President, ICRA Limited

On the demand side, the urban demand is headed for a slowdown in the near term. Given that the government's priority is to fight the pandemic, investment in infrastructure may get delayed to an extent - particularly from the state governments in view of their own fiscal constraints. Most of the companies in private sector too are deferring the capex plans to preserve liquidity. We expect, the impact would be significant on the construction activities in Q1 FY2021 due to lockdown, and issues around availability of labour, raw-material, and logistics impacting execution. Considering the current spike in the covid-19 cases and state specific lockdowns, the recovery is expected to be gradual and would likely take few quarters to revert to normalcy.

Key Deterrents

Many major cement companies in India have increased their production capacity at a considerable rate over the past few years, relying mainly on government support. However, the rate of cement production has not risen at the same pace as compared to capacity expansion during the same period. This gap between installed capacity and actual production is mainly due to delays in the processes related to awarding of construction projects and decision-making regarding commencement dates, acquisition of land for construction projects, etc., at government offices, mostly for the execution of roads and highways construction projects and smart city development projects.

Towards Sustainability

Cement is considered to be an energy intensive sector with energy costs making up a significant proportion of the total cement production cost. The Indian Cement Industry has well realized that climate change and energy security are global challenges and need to adopt sustainable technologies, innovations and processes for the techno- socio- economic development. 

In 2019 The Global Cement and Concrete Association (GCCA) launched GCCA India. As part of GCCA's strategic partnership with the World Business Council on Sustainable Development the new office, based in Mumbai, will take over the work of the Cement Sustainability Initiative (CSI) India, which formerly served as the sector's sustainability alliance. GCCA India plans to ensure that, from a sustainability angle, innovation in technology and manufacture, and collaboration across the wider built environment, the Indian cement sector can play a key leadership role. It will develop a work program that will focus on the wider global GCCA priorities but with practical application across the Indian built environment.

The Sustainable Development Goals (SDGs) have the potential to unleash innovation, economic growth and development at an unprecedented scale. They also represent a significant market opportunity for business, estimated to be worth at least USD $12 trillion per year by 2030.

India has played an important role in the inception of the SDGs and will also be integral to realizing them. Because of the size of its population, its stage of development and its fast-growing economy, there can be no sustainable world without a sustainable India. The Indian cement sector has been working for many years to address the various sustainability challenges facing the sector.

The big scope in cement industry is moving to more blended cements to reduce the utilisation of lime stone reserves, and this product is more environment-friendly.  We need to have support of various institutions like premier IITs to increase consumption of blended cement as per construction requirements, said M. Ravinder Reddy, Director - Marketing, Bharathi Cement Corporation Pvt Ltd

The Indian cement sector has an active role to play in providing solutions to these challenges and helping to realize sustainable growth. India is the second largest producer of cement in the world and has witnessed high growth recently. The Indian cement sector has a track record of implementing initiatives to drive growth and operational excellence. The sector recognizes that cement manufacturing and related operations contribute to climate change. It has taken proactive measures in India, such as producing a Low Carbon Technology Roadmap (LCTR) and implementing its recommendations, resulting in lower emissions intensity. For continued success and long-term value creation, the sector will need to align its long-term sustainability and business strategies with the SDGs.

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