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Update on India, April 2020
08 April 2020As India reaches two weeks into its 21 day lockdown to combat coronavirus, the financial analysts are starting to publish their forecasts as to what the effects will be for the cement industry. The results are gloomy, with demand predicted to drop by up to 25% in the financial year to March 2021 by one analyst and 40% in March 2020 alone by another.
Graph 1: Indian cement production, rolling annual by month, January 2018 – February 2020. Source: Indian Ministry of Commerce & Industry.
The graph above sets the scene for what may be to come by showing the state of production in India in recent years. From early 2018 it picked up by 17% to 337Mt by March 2019 and stayed around there through the rest of year before breeching 340Mt in January and February 2020. The (relative) lull in production growth in 2019 was blamed by some analysts on the general election in mid-2019 and then the monsoon rains. In summary the market was improving and seemed set for further growth in 2020. Alas, this does not now seem to be the case.
Looking ahead, Rating’s agency CRISIL has published a research paper on the topic and here are some of the highlights. They break the damage down into two separate scenarios. The first, where the social distancing measures last until the end of April, cause a 10 – 15% fall in cement demand with the pain limited to the first quarter of the Indian financial year, which starts on 1 April. The second, where distancing measures last until June, cause a 20 – 25% decrease in demand, with the problems extended into the second quarter. Salient points that it makes about the anticipated recovery include a delay in infrastructure spending due to the government diverting funds to healthcare, reduced private and real estate markets and a divide between state-led affordable housing schemes in urban and rural areas. It pins its hopes on rural housing to grab demand first, followed by key infrastructure projects, especially transport schemes.
Examining the cement producers directly, CRISIL reckons that prices will fall in the face of dropping demand but that power, fuel and freight costs are all expected to fall also. Profit margins are forecast to drop compared to the 2019 – 2020 financial year but still remain higher than the two previous ones. Finally, it looked at the credit profiles of 23 companies, representing over 70% of installed production capacity. Together they had a total debt of US$7bn. It flagged up four of these companies as having high debt/earnings ratios and five with low interest coverage. The latter were described as ‘small regional firms with weak cash balances.’
That’s one view on what may happen but two recent general industry news stories offer snapshots on what may be to come for the Indian market. The first is an immediate consequence of a nationwide lockdown in a country with a population of 1.3bn and a low cost of labour. 400 construction workers at a grinding plant build for Ramco Cements in Haridaspur, Odisha, were stranded at the site when the quarantine restrictions stopped them travelling home to Bihar, Jharkhand and West Bengal. They took up residence at the building site and then protested when the food ran out. This point about migrant labour is noteworthy because how the Indian government relaxes the lockdown could have massive consequences upon how the construction industry recovers. A possible parallel from elsewhere in the world is the slowdown effect the Saudi Arabian cement industry suffered in late 2013 when the government took action against illegal foreign workers in the construction industry.
The second news story to keep in mind is the annual results from refractory manufacturer RHI Magnesita this week. It reported growing revenue from its cement and lime customers in 2019 but it blamed a weaker market in Europe on producers stockpiling product due to tightening magnesite and dolomite raw material availability. The takeaway here is that if supply chains supporting the cement sector and the rest of the construction industry in India at the moment are affected by the coronavirus outbreak, and government action to stop it, then there may be consequences later on. So far Global Cement hasn’t seen anything like this but the preparation for coronavirus advice from industry expert John Kilne has been to indentify and secure medium term needs, including refractory and critical spare parts and to consider potential disruption to supply chains.
In terms of what happens next once the lockdown ends in India (and other countries), one media commentator has described the response to coronavrius as the ‘hammer and the dance.’ The hammer is the economy-busting measures many governments have implemented to stop local epidemics. The dance is/are the measures that countries are using before and after an outbreak to keep it suppressed until a vaccine is developed. The worry for building material producers is how much the ‘dance’ disrupts business over the next year. All eyes will be on the East Asian producer market figures for the first quarter to see how this plays out.
Dalmia Bharat aids coronavirus relief in Odisha
08 April 2020India: Dalmia Bharat has donated US$262,000 to the Odisha Chief Minister’s Relief Fund to help people survive the coronavirus outbreak and lockdown. United News of India has reported that Dalmia Bharat has participated in extensive humanitarian efforts during the on-going pan-Indian coronavirus lockdown, including delivering a week’s groceries to 650 families in the Odisha town of Rajgangpur and dry food packets to 900 families in districts around its Biswali, Odisha plant. The group has cooked meals for 3000 people and arranged with local administrators to feed a further 8800. Dalmia Bharat has also opened its technical centres, guest houses and schools to medical authorities for use in treating coronavirus cases. Dalmia Bharat East regional manufacturing head Sunil Gupta said, “We are totally committed to supporting the national and state governments in their fight to contain the spread of COVID-19.”
Shree Cement ready to resume operations
08 April 2020India: Shree Cement has said that it will resume production across its 37.9Mt installed capacity as soon as the government lifts its coronavirus lockdown. Shree Cement general manager Hari Bangur said, “We are technically ready to start our cement plants.” The Business Standard newspaper reported that other producers are equally determined to get back to work. JK Lakshmi Cement has said that it will require a minimum of 15 days after the end of lockdown to streamline its operations.
Cement demand forecast to plunge in India
07 April 2020India: Cement manufacturers in India have seen a significant turn in fortunes since the start of 2020 due to the ongoing coronavirus outbreak. Producers, which had been raising prices and selling high volumes at the start of the year, are seeing a slump in demand in the wake of a nation-wide lockdown that began in mid-March 2020. Motilal Oswal Financial Services estimates that cement sales in March 2020 will be 40% lower than those seen in March 2019. Even after the lockdown ends, there will be severe knock-on effects for the remainder of India’s 2021 Fiscal Year (FY2021), which ends on 31 March 2021. This is expected to be due to weak economic growth, government cuts in spending on infrastructure and lower real estate demand.
Indeed, ratings agency CRISIL expects cement demand in India to contract by at least 10 - 15% in FY2021 compared to FY2020, with a ‘worst-case scenario’ of up to a 25% reduction.
The only respite that cement manufacturers may see is on the logistics side. With lower production volumes, transporters are offering more concessions on freight rates that will further help with costs, according to analysts. Low oil prices will benefit producers, while Petcoke prices may also remain relatively low.
South Asian trade body welcomes relief measures
07 April 2020Pakistan: The Pak-India Business Council (PIBC), a leading Pakistan-based organisation that advocates for stronger trade ties with India, has welcomed a relief package for the construction sector announced by Prime Minister Imran Khan. The PIBC said that the measures would be help generate business in the country, including for those taking home daily wages, who have been disproportionately affected by the coronavirus outbreak.
PIBC Chairman Noor Muhammad Kasuri said that the Khan's relief package would help provide relief to construction workers. He also welcomed an exemption of duty on construction materials, including cement, that would also help construction firms and allied businesses. Kasuri even added that the steps would open ‘new vistas of investment’ in the country after the outbreak.
HeidelbergCement completes grinding plant expansions
01 April 2020India: Germany-based HeidelbergCement has announced the successful expansion of two grinding plants. Accord Fintech News has reported that the company took advantage of the suspension of cement production since 24 March 2020 to complete debottlenecking work at the Jhansi, Uttar Pradesh, and Imlai, Madhya Pradesh, grinding plants, bringing their cement production capacities to 3.3Mt/yr and 2.5Mt/yr respectively.
HeidelbergCement India has an integrated capacity of 3.7Mt/yr and a grinding capacity of 6.3Mt/yr (total capacity: 10Mt/yr).
India: Construction workers employed at the site of Ramco Cement’s Haridaspur, Odisha, grinding plant, which has been under construction since early 2018, have protested over an alleged lack of food being supplied to the plant, where they are currently residing. The Pioneer newspaper has reported that the nationwide coronavirus lockdown prevented the 400 workers, from Bihar, Jharkhand and West Bengal, from returning home, leading them to take up residence in the Haridaspur plant. Police are talking with the protestors and Ramco Cements management.
Dalmia closes 26.5Mt/yr of production capacity overnight
27 March 2020India: Dalmia Bharat has suspended operations across its entire integrated cement production apparatus, equalling 26.5Mt/yr capacity, as of 26 March 2020. The move is a response to a government ordnance of 25 March 2020 imposing a 21-day lockdown on the whole of India due to the coronavirus. The company will implement the closure ‘until further notice,’ according to Mint News.
Dalmia Bharat CEO and managing director Mahendra Singhi said, “While cement production is continuous in nature and the plants have requisite permission from both the state and the central governments to operate with minimum employees during the lockdown, Dalmia Bharat will only carry out mandatory activities required for safety and security of the plants in the larger interest of its staff.”
Coronavirus had claimed 13 lives in India on 27 March 2020.
Cement industry reactions to coronavirus
25 March 2020Cement producers and suppliers are now reacting to the coronavirus pandemic at scale. The biggest obvious development has been the lockdown in India that began on 24 March 2020. The implications for the cement industry are profound given the country’s population (1.3Bn) and massive cement consumption under normal conditions. It is the country with the world’s second largest cement production capacity.
UltraTech Cement, the biggest producer, said that it was suspending production at ‘various’ locations although it added that the situation was ‘dynamic’ and that it was monitoring it from time to time. Ambuja Cement and JK Lakshmi Cement have done likewise. The latter has suspended cement production at an integrated plant in Rajasthan and three grinding plants in Gujarat. Some Indian states have moved faster than others towards shutting down movement of people so JK Lakshmi’s decision may merely be based on legal necessity. However, a difference may arise in producer strategies between keeping integrated and grinding plants open. Building up inventory is one strategy seen in poor market conditions previously around the world. Alternatively, moving to more of a grinding model might make sense in some territories if, as is happening, countries implement lockdowns at different periods. However, some Indian states have moved faster than others towards shutting down movement of people and JK Lakshmi Cement’s closure pattern may simply reflect this.
At the international scale HeidelbergCement gave an idea to Reuters of the challenge facing the multinationals. Chief executive officer (CEO) Dominik von Achten described the start of 2020 as being strong but that construction projects were being delayed in the US and that activity in France and Spain was starting to weaken. Unsurprisingly, the company has shut down three of its plants in Lombardy at the centre of the Italian epidemic. He added that the group was holding a daily crisis call to assess the effect of the virus upon staff. He also said that the group was stockpiling cement amid the disruption. The clear warning sign was of an existential threat like that faced by the airlines whereby sales could simply stop for a three or four week period… or longer.
On the supplier side, Denmark’s FLSmidth has issued a robust plan on how it is aiming to maintain service and support for its customers. Past all the now-usual stuff such as remote working it included detail on how to support clients on site where absolutely necessary on a case-by-case basis. With regards to its supply chain it pointed out that it was confident, “that any local interruptions to our suppliers can be minimised, even when the agility of some suppliers is put to the test. We have redundancy built into the system.” To this end it emphasised the global nature of its business to ensure that it could deliver parts and equipment to its customers. It claimed that it coped with coronavirus in China due to its ‘very flexible’ supply chain but did admit to some supply chain impacts. Yet it says that production is back to approaching full capacity with workshops in Qingdao and Shanghai above 90% as they work their way through accumulated backlogs. Finally, it is also offering advice on how the company can support its customers on reducing or shutting down operations.
Other supplier comments on the situation have mainly been about protecting staff, working remotely and supporting customers through continued supply of equipment and services. Back in India, Sameer Nagpal, the CEO of refractory manufacturer Dalmia-OCL told Business Standard that the company was coping so far with the crisis with little major impact seen so far. Its raw material supply chain was dependent on China but after some minor disruption it was secure. Most of its customers are domestic, where it hadn’t reported problems so far, although this may change with the Indian lockdown. Exports were a different story as it sends around 10% of its production abroad and it has a plant in Germany. In Europe it was seeing a challenge due to supply chain disruption.
The experiences above are a snapshot of some of what is happening in parts of the industry as coronavirus disruption hits home. China’s restrictions are easing, most of Europe is in lockdown, India has started its quarantine and the US has restricted movement in about a third of its states. The current restrictions in the UK, for example, allow for construction work to continue but local media is debating the associated risks for workers. Other territories have different rules. All of this is affecting demand for cement and concrete. This in turn feeds through to producers and their suppliers. Global Cement continues to monitor the situation and wishes readers a safe passage through the pandemic.
Indian producers pull plug on operations
24 March 2020India: Several cement producers have responded to the coronavirus pandemic with plant closures. Reuters has reported that India Cements has temporarily closed all of its plants. JK Lakshmi Cement has suspended cement production at its 4.2Mt/yr integrated plant in Jaykaypuram, Rajasthan and at three grinding plants. JK Lakshmi subsidiary Udaipur Cement Works has shut its 1.6Mt/yr integrated Udaipur plant, also in Rajasthan.
Dalmia Bharat refractory production subsidiary Dalmia-OCL’s CEO Sameer Dagpaal told the Business Standard newspaper that he expected the virus’ impact on the company to be ‘relatively limited,’ with a slowdown in demand from the cement sector lasting at most ‘a couple of months.’ He noted that there had been ‘some minor supply-side disruptions relating to a shortage of raw materials from China.’
On 24 March 2020 the all-India total number of coronavirus cases crossed 500, with nine dead, according to Al Jazeera. 200 cases are in the western states of Maharashtra and Kerala.