Indian ratings agency ICRA has reported that the outlook for the cement industry continues to remain challenging, with pricing pressures, weak demand and cost headwinds negatively affecting the sector.
ICRA reported that cement production has remained subdued during FY14, increasing by 3.7% during April – December 2013, primarily due to weak demand from end-user industries. Delays in environmental clearances for industrial and infrastructure projects and sand unavailability in some states contributed to slow growth. The demand was sluggish during 2Q14 due to a slowdown in construction activities during the monsoon season. Cement demand failed to pick up even in the post monsoon season due to continuing weak demand from the infrastructure and real estate sectors.
However, cement demand is expected to recover in the last quarter, driven by rural housing demand following increased rural incomes due to good monsoons and pre-election spending by state governments, primarily on road strengthening and improvements, state highways and power transmission, ICRA said.
Cement prices and rising costs
Cement prices continued to remain under pressure in 3Q14. Though cement manufacturers made a few attempts to raise prices during the quarter, most of the price hikes undertaken by the industry were partially or fully reversed.
Furthermore, Indian cement producers continue to face rising input costs. Freight costs have significantly increased over the past two years, as a result of a rise in freight rates by railways, diesel prices and dependence on expensive road transport (due to a shortage of railway wagons), ICRA reported.
The rise in domestic coal prices has resulted in an increase in the cost of power and fuel. Prices of raw materials such as limestone and gypsum have also increased.
Adapted from press release by Rosalie Starling
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