Cement demand may have risen in Q4, leading to new market trends

Supply has outpaced demand in India’s cement sector for the past decade, with most of the surplus capacity concentrated in the southern region. The jury is still out on whether the mismatch is diminishing with the emergence of new trends.

Four trends

One, in anticipation of a further rise in demand, equipment ordering for the sector hit a record high in FY23. According to an Asian Markets Securities report dated April 11, the cement industry placed equipment orders for 34.84 million tonnes of cement capacity and 17.43 million tonnes of clinker capacity in FY23. This was in addition to equipment orders of 28.37 million tonnes of cement capacity and 13.66 million tonnes of clinker capacity placed in FY22.

Clinker is a material used in the production of cement.

Two, India’s cement capacity is estimated at 578.06 million tonnes in FY23, according to the Asian Markets Securities report. Cement production is pegged at 380 million tonnes, as per CARE Edge estimates for FY23.

“There is comfortable overcapacity,” said a cement analyst.

Three, the current rise in cement demand has led some to anticipate a clinker shortage in the non-south regions. India’s total clinker capacity is expected at 369.70 million tonnes, Asian Markets Securities said.

“With the increase in cement demand on the back of heightened government focus to develop infrastructure and housing since it is a pre-election year and good real estate demand, there may be some constraint in supply, particularly in some regions owing to a clinker shortage except the south, which already has more supply than demand,” said Uttam Kumar Srimal, an analyst with Axis Securities.

He expects India’s demand-supply mismatch story to reverse in the longer term.

“We see demand outpacing supply as we estimate demand CAGR of 7 percent- 8 percent while supply CAGR is estimated at 6 percent-7 percent from FY23-25E. In between this period, there may be cases where supply may be more than demand as new capacity arrives. However, overall demand shall be higher than supply as we progress to see overall infrastructure development moving ahead,” he said.

Four, companies such as Bharathi Cement and Sagar Cement have been utilising capacities better through sale to other regions.

Ravinder Reddy,  director-marketing for Bharathi Cement, which has a presence in the southern and western markets, is hopeful that volumes from the southern markets will find their way to other regions if demand remains robust.

“South has a surplus. Other regions are seeing better utilisation… If demand grows at the same momentum as last year, clinker shortage could be a possibility (except in the south) or we may see more volumes pushed from the south,” he said. “We have been able to push all our surplus production to the western markets.”

For Sagar Cement’s Mattampally unit in Telangana, analysts with ICICI Securities noted that clinker capacity of 2.8 million tonnes is currently operating at 90 percent-plus utilisation. The plant caters to markets in Andhra Pradesh, Telangana, Tamil Nadu, Odisha and Maharashtra, the note said.