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India cement production growth forecast downgraded

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World Cement,

India’s cement producers will be hit by the country’s controversial demonetisation programme and higher petcoke prices, according to ratings agency, India Ratings and Research (Ind-Ra).

According to Ind-Ra, cement production is likely to grow by 4% in the 2017 Financial Year (FY17). This is down from its earlier estimate of 4 – 6%, as the real estate and construction sectors bear the brunt of the economic impacts of demonetisation, which saw the government ban higher denomination currency notes.

Lower cement output is expected to be focused in the November – December 2016 period, Ind-Ra said. Production growth was just 0.5% in November, compared to 6.2% in October and 4.3% on average between April and November. Prices have also fallen between INR15 and INR20 per bag.

In addition to weaker demand, India cement producers are having to deal with a rise in the cost of petcoke to around US$60 – US%70 per tonne from US$40 per tonne at the start of FY17. More costly petcoke – as well as higher diesel prices – increases input costs for cement production, while lower demand limits the ability of cement companies to pass on higher prices to their customers – squeezing margins.

This could place smaller-scale producers under stress in coming quarters, according to Ind-Ra, although the outlook for bigger cement producers is more stable.

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