Cement industry grappling with sudden changes, imposed by rains and a virus variant: N Srinivasan

The rulers were quick to grasp the need of COVID-hit hour and went for an expansionary exercise, giving a go-by to the budget deficit number. “The last budget created a lot of enthusiasm and enormous hope’’ as it envisaged a massive infra investment south of the Vidhyas, perhaps for the first time. That was a major effort, according to him. But things did not go according to the script. 

The second wave of the pandemic and unprecedented rains across the country together changed the game, and for the cement industry in particular, according to him. “Rains persisted through and after the Ganapathi festival in the west, and then Onam in Kerala. South Karnataka was floating. And Tamil Nadu too saw incessant rains,’’ he said. So the hopes raised by the previous budget were belied. 

According to him, the industry expects to make up for lost demand in the remaining months of the financial year. “We are hoping that the pent-up demand will keep us busy up to March,” Srinivasan said. If the trend continues and the government continues its policy focus on infra, the coming year should be buoyant in his view. There is a rider, though. It all depends on the course of the pandemic. 

Viral shock

Parts of India especially North which have not been affected by rains have seen heavy infra spending, but the supply of coal has hit a bump. In the absence of supplies from America, the industry has relied on coal from South Africa and Australia, and they are of slightly inferior quality. Now the spread of omicron–the variant of coronavirus first detected in South Africa–is posing a new challenge. 

“Will the government stop movement of people and goods from South Africa? If it does, then that could force us to rely more on Australian coal with more serious cost implications,” he said. After all, the power sector is prioritised in the supply of Indian coal. 

Srinivasan and his industry peers are keeping their fingers crossed, waiting to see how the government will react to omicron. What if omicron leads to a lockdown? That fear is still lurking in the minds of many industry observers.

“If I take a scenario planning (of say five years), there will be massive movement of cement from the south to other parts of the county,” he said. The reasons are not hard to see. While plants in other parts of India are running at full capacity and aren’t planning for new capacities, plants in the South are running below capacity. Also, the South is where substantial limestone deposits are available. “We (south) have to supply a substantial part of coal demand in other parts of the country,” he said. In his view, this requires some sort of an incentive for the units in the South. 

Perhaps a telescopic freight rate for south units? The railways did offer it last year, though that was limited to cement clinker. “We have to supply the clinker to the grinding units in other parts for them to convert them into cement,” he said. There was a 20 percent freight concession for the south units, but it came with a rider–the railways set a benchmark supply for extending the concession to next year. “We have to supply more than what we did last year,” said Srinivasan, and that does not look possible in the current scenario. By some strange logic, the railways allowed a freight concession for clinker movement but not for cement!

Well, Srinivasan and other industry peers in this part of the world are asking for some kind of a mechanism–a lasting one at that–to allow for an equitable distribution of cement across the country. In the absence of it, profiteering will catch on.