It is reported that the cement market in northern India, which accounts for 30% of India's national consumption, is expected to recover in fiscal year 2017-18, when local infrastructure construction will lead to an improvement in cement demand.
"The North Indian cement market has historically been characterized by balanced supply and demand, high capacity utilization and low intra-regional competition, with only a small proportion of competition from companies in other regions," Ambit Capital said in the report. However, a large proportion of cement consumption comes from rural areas, and the market is mainly retail.
The report points out that the decline in rural sales and the lack of recovery in demand for cement in real estate and infrastructure construction have created a major obstacle to the growth of cement demand, which has led to a further decline in demand and prices in the North Indian cement market. Infrastructure projects, the main market for cement consumption in North India, have shown signs of demand growth, but substantial recovery will not occur until the 2017-18 fiscal year.
North India consumed 79 million tonnes of cement in the 2014-15 fiscal year, accounting for 31% of India's overall cement consumption. The 2015-16 fiscal year was supposed to be a year of demand recovery, but in fact demand was worse, due to the sharp decline in rural consumption, a record high in real estate inventory, a weak recovery in infrastructure construction and a weak performance in government bidding.
Cement companies in the region are caught in a price war to compete for a limited market. At present, the price of cement in North India is only 65% of that in South India. In the 2014-15 fiscal year, the market share of local cement enterprises was 51%, compared with 45% 10 years ago.
Infrastructure construction is difficult to restore, the demand for rural construction has shrunk in the past year due to poor rainfall and low income, and the real estate market is facing a shortage of liquidity due to the government's control of black money. For these reasons, the North Indian cement market is facing a growth crisis.
The report predicts that northern India will be the main beneficiary of India's infrastructure recovery, with most of the large infrastructure projects (road construction, Delhi-Mumbai industrial corridor, etc.) in northern India. However, the obvious and sustained growth of sales will not occur until fiscal year 2017-18, when cement enterprises with obvious scale and cost benefits will benefit the most.
Pan India cement companies are trading at higher values, with greater downside risk to profitability, and companies do not have good cost control to improve their return on capital, so even if there is a significant increase in cement production and consumption, there is little chance of a recovery in regional cement prices.
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