Proactive Government Support And Growing Infrastructure Boosts Fortunes Of Cement Industry

The reasons for this positive momentum are not hard to grasp. The Union Ministry of Road Transport and Highways has achieved remarkable progress in the development of transportation infrastructure throughout the country. Other infrastructure segments like ports, airports and smart cities have also been growing at a fast clip. Rising rural housing demand on the one hand and planned urbanisation on the other are also helping the cement sector to remain buoyant. In 2023, infrastructure emerged as one of the top-performing sectors, attracting US$ 11.6 billion across 57 deals. Real estate followed closely witnessing a record-high of US$ 8 billion across 55 deals.

Infrastructure Push Critical

Government support has been critical. The latest interim union budget approved an outlay of US$ 32.57 billion (Rs. 2.7 lakh crore) for infrastructure. The budget estimate for Pradhan Mantri Awas Yojana for affordable housing was US$ 9.63 billion (Rs. 79,590 crore), a 66 per cent rise over the last year’s budget. As per Invest India, the National Infrastructure Pipeline (NIP) expanded to 9,735 projects worth US$ 1,828.48 billion as of now. The PM Gati Shakti National Master Plan for infrastructure is also driving cement demand. 

An IBEF study says that India’s cement production reached 374.55 million tonnes in the financial year 2022-23.  The country's cement industry, as per CRISIL Ratings, plans to increase its capacity by 150-160 MT between financial year 2024-25 and financial year 2027-28. 

India has a total of 210 large cement plants, of which 77 are in Andhra Pradesh, Rajasthan, and Tamil Nadu. Nearly 32 per cent of India's cement production capacity is based in South India, 20 per cent in North India, 13 per cent in Central, 15 per cent in West India, and the remaining 20 per cent is based in East India. 

Road ahead

If the above gives a broad overview of the sector today, looking ahead, whichever government comes to power after the current elections, infrastructure development, transportation and highways cannot be left behind. They are key drivers for a developed India. 

The Indian Railways is moving in tandem beefing up its capacities to carry more cement to different parts of the country.  In the future, the eastern states of India are likely to be the newer and untapped markets. 

The presence of small and mid-size cement players across regions is increasing, which helps diminish the market concentration of industry leaders. Sustainable cement is going to be an important factor for the future. A year back, UltraTech announced that it had been granted Environmental Product Declaration (EPD) certificates for four of its cement products. Dalmia Bharat (Cement) has also announced plans to produce 100 per cent low carbon cement by 2031. The company has a US$ 405 million carbon capture and utilisation (CCU) investment plan to help it realise its goal. 

The Government of India has decided to adopt bulk cement instead of bitumen for the construction of all new road projects on the grounds that cement is more durable and cheaper to maintain than bitumen in the long run. Companies are trying to develop a niche market for Ready-mix concrete (RMC). Of the total capacity, 98 per cent lies with private sector and the rest with public sector. The top 20 companies account for around 70 per cent of the total production. 

Price Economics 

A recent CRISIL note says that cement prices slipped marginally, by 1 per cent, during April-December 2023, marking a trend reversal after four years of growth between 2020 and 2023 at a compound annual growth rate of 4 per cent.

With cement makers adding 35-40 MTPA of capacity this fiscal, the highest in more than a decade, and acquired capacities being ramped up, a significant increase in supply would test market discipline and restrict the increase in prices to only 0-1 per cent. Softening of power, fuel and freight costs, which account for about 50 per cent of the total production cost, has provided a breather to manufacturers amid steady realisations.

About a decade back, one of the theme songs of the cement sector used to be cartelisation of prices. With increasing supply and competition between players, that phase is perhaps over.  

The present day forms of cement and concrete are the result of a history spanning more than 5,000 years from the time of Egyptian pyramids. After Egypt, Greeks and Romans further developed the product. India entered cement making around 1914 with the establishment of the Indian Cement Company Limited in Porbandar, Gujarat. From then to now when the country has seven per cent of global capacities, it has been a difficult, bold and competitive journey.