Displaying items by tag: demand

Mozambique: The African Elephant cement grinding plant is operating at a third of its production capacity due to low demand. The Chinese-owned plant near Pemba, Cabo Delgado in the north of the country is producing around 300t/day despite the plant’s production capacity of 1000t/day, according to sources quoted by the Mozambique News Agency. The plant’s manager expects demand to pickup once investment in the gas industry increase. The company has suffered from imports from Tanzania.

It’s been a pessimistic month for the Indian cement industry with Ministry of Commerce & Industry data showing that cement production has fallen year-on-year every month since December 2016. This was followed by the Cement Manufacturers Association (CMA) saying that the industry was sitting on 100Mt/yr of excess production capacity. Now, the credit ratings agency ICRA has followed the data and downgraded its forecast for cement demand growth to not more than 4% for the 2017 - 2018 financial year.

Graph 1: Annual cement production in India. Source: Ministry of Commerce & Industry.

Graph 2: Monthly cement production growth rate year-on-year in India: Source: Ministry of Commerce & Industry.

Graph 1 shows a production peak in the 2015 - 2016 financial year before falling monthly production broke the trend in the 2016 - 2017 period. Graph 2 pinpoints the month it started to go wrong, November 2016, when the government introduced its demonetisation policy. Production growth went negative the following month in December 2017 and it hasn’t managed to right itself since then and grow. It’s convenient to blame the government for the slump in production but it troughed in February 2017 before taking a lower level of decline since then.

The Reserve Bank of India (RBI) annual report in August 2017 suggests that the policy failed in its principal purpose of reducing the kind of corruption that a cash heavy economy can hide such as tax avoidance. People reportedly managed to find ways to bypass the bank deposit limit and may have successfully laundered large amounts of cash without being caught. However, as commentators like the Financial Times have pointed out, the longer term implications of forcing the economy towards digital payments and increasing the tax base could yet be beneficial overall.

Graph 3: Cement production capacity utilisation rates in India. Source: UltraTech Cement.

Moving on, the CMA has blamed production overcapacity for the current mess and Graph 3 shows the problem starkly. If anything the CMA appears to have downplayed the over capacity crisis facing India, as UltraTech Cement’s figures (using data from the Department of Industrial Policy and Promotion) show an overcapacity of 155Mt in the 2016 – 2017 year and this will grow to a forecast 157Mt in the next financial year, even though the utilisation rate is expected to rise slightly. UltraTech Cement’s estimates don’t see the utilisation rate topping 70% until the 2020 – 2021 financial year. Analysts quoted in the Mint business newspaper concur, although they reckoned it would the rate would bounce sooner, in 2019 - 2020. Last month when the CMA moaned about the industry's excess capacity it pinned its hopes on infrastructure schemes like the Mumbai-Ahmedabad bullet train. This prompted an official at JK Cements to say that he didn't think that one train line was going to make much of a difference.

This is one reason why ICRA’s and the other credit agencies’ growth rate forecasts for cement demand are important, because they indicate how fast India might be able to close the gap between production capcity and demand. Unfortunately demonetisation scuppered ICRA’s growth prediciton for 2016 – 2017. It forecast a rate of 6% but it actually fell by 1.2%! So downgrading its forecast for 2017 – 2018, with fears of weather and the implementation of the Goods and Services Tax (GST) in the second half of the year, is ominious. Major cement producers such as Ultratech Cement and Ambuja Cement have based their road to recovery in their latest investor presentations on a 6% growth rate or higher. Pitch it lower and the gap doesn’t close. Here’s hoping for a brisk second half.

Bolivia: Coboce, Itacamba Cemento, Soboce and Fancesa have all reported weakened demand for cement in the first half of 2017. Coboce’s sales growth has slowed year-on-year to 5% due to a reduced local government spending on infrastructure projects and poor weather, according to the El Deber newspaper. Despite this the cement producer expects sale to grow by 6 – 8% as a whole for 2017. Sales of the Camba cement brand produced by Itacamba Cemento have increased and this brand now holds 30% of all sales in Santa Cruz. Fancesa has seen a sharp contraction of its market share in Santa Cruz to 35% from 57%, although this now appears to have stabilised. The company is now targeting Cochabamba and Potosi.

India: The credit ratings agency ICRA has forecast that cement demand is likely to increase by 5% year-on-year in the 2017 – 2018 financial year due to increases in infrastructure and residential housing. In a report on the Indian cement sector it said that demand for cement fell by 1.2% to 280Mt in the 2016 – 2017 period, according to the Hindu newspaper. It added that the government’s demonetisation policy had decreased sales volumes by 9% between November 2016 and March 2017 as construction activity fell. However, in July 2016 ICRA failed to anticipate the negative effects of demonetisation predicting that cement demand would grow by 6% in the 2016 – 2017. Since then sales picked up by 17% in April 2017 leading to the current optimistic outlook.

India: The Cement Manufacturers Association (CMA) says that demand for cement is likely to grow in the second half of the Indian financial year due to the new Goods and Services Tax (GST) and increased infrastructure spending. The cement industry is also expected to benefit from a 30% reduction in logistic costs due to simplified state border checks, according to the Press Trust of India. The CMA’s forecast follows a fall in growth for the cement industry in the previous financial year.

Philippines: The Board of Investments (BOI) is seeking investment in the cement sector as it expects demand to double to 40Mt/yr by 2020 due to a peak in government infrastructure spending. At the same time Department of Trade and Industry (TI) Undersecretary for industry promotions group Ceferino S Rodolfo confirmed that two companies are preparing to build new integrated plants, according to the Manila Bulletin newspaper. Both companies are obtaining permits for their projects but Rodolfo would not confirm their identifies. DMCI Holdings was reported in the local press as being interested in building a plant Antique's Semirara Island in early June 2017.

India: The cement industry is expected to grow at 6-7% in the current 2017-2018 fiscal year, which runs from 1 April 2017 to 31 March 2018, according to HeidelbergCement India. The company said that, while infrastructure (including a focus on concrete roads), affordable housing programmes and the prospect of a normal monsoon augur well for the industry, oversupply may restrict the ability to pass on any input cost increases.

Russia: Sibirsky Cement expects that demand for cement in Siberia will fall by 8 – 10% to 4.7 - 4.8Mt in 2017. The cement producer said that its output decreased by 22% to 2.15Mt from its Kemerovo Region-based Topkinsky Cement, by 3% to 0.75Mt from its Krasnoyarsky Cement plant and by 10% to 0.27Mt from its Timlyuisky cement plant, according to the Prime Tass news agency. Overall its cement production fell by 17% year-on-year to 3.17Mt in 2016. It has blamed falling production on an overall decline in Russia’s cement market.

A few days ago my family faced a financial crisis caused by demonetisation. The family piggy bank holds a number of one-pound sterling coins. However, the Bank of England is set to introduce a new 12-sided one-pound coin in March 2017 and withdraw the old type circular coin by the end of October 2017. Unfortunately the piggy bank in question is of the variety that can only be opened by smashing it. There followed various attempts to extract the coins via the narrow opening.

Now just imagine if a country of over 1.25bn inhabitants and a gross domestic product of US$8.7tr faced a similar problem. Well, you don’t have to imagine it because India’s demonetisation plan to remove 500 and 1000 rupee banknotes from circulation started in November 2016. Some commentators reckoned that the banknotes represented nearly 85% of its currency by value. Indian citizens then had until the end of December 2016 to take the old bank notes to a bank to have them exchanged. The government has said that the plan was conceived to cut corruption, increase tax revenue and reduce cash hoarding. However, critics have attacked the policy for unduly penalising the poorest members of society as they struggle to move from using cash to electronic methods.

That’s the background. Global Cement is interested in cement markets. Although its early days yet some reactions and data are starting to emerge. Ambuja Cement launched a marketing campaign in December 2016 to help its customers cope with a cashless business environment. The initiative has included working with a bank to operate a helpline assisting people in opening bank accounts as well as putting out the message in various media including sending one million text messages. Clearly, at least one of India’s major cement producers is taking the problems caused by demonetisation seriously.

Alongside this, various reports have trickled out since November 2016 trying to work out the effects of the financial transition on the cement industry. Firstly, the India Cements reported in mid-November 2016 in a financial report that demonetisation had not impacted its cement sales. Deutsche Bank Markets Research then predicted that the policy would reduce cement demand by up to 20% for the last few months of 2016 and then reduce growth by 3% in the first three months of 2017. Its analysts reckoned that the residential sector would suffer the most and that although infrastructure spending might offset this a little, reduced taxation from a punctured property market would also adversely affect infrastructure funding. A report in the Hindu newspaper in early December 2016 feared that cement demand might be reduced by up to 50% in November 2016. It also raised the concerns of the managing director of Shiva Cement who said that contractors were finding it difficult to buy raw materials and pay wages.

Now in early January 2017 the India Ratings and Research credit ratings agency released a research note predicting that cement production growth was likely to fall to 4% for the 2017 financial year ending on 31 March 2017 from a previous estimate of 6%. It reported that production growth rose by only 0.5% year-on-year in November 2016 following a growth rate of 4.3% from April to November 2016 and rates of 5.5% and 6.2% in September and November 2016 respectively. It added that the housing sector constitutes around 65% of cement demand and that this share is likely to fall.

After a strong start to the year the Indian cement industry was looking forward to a growth rate above 5% in its 2016 - 2017 financial year. The figures aren’t out yet and the year isn’t finished but it is looking likely that demonetisation, a direct government policy, has smashed demand for cement in India in the short term.

Global Cement would be interested to hear from any readers in India for their comments on demonetisation and its effect on the cement industry – This email address is being protected from spambots. You need JavaScript enabled to view it.

India: The India Ratings and Research credit ratings agency has said that demonetisation of the economy is likely to reduce growth in the cement industry by 2% to 4% in the 2016 – 2017 financial year that ends on 31 March 2017. Previously it had predicted growth of up to 6% in this period. The agency reported that cement production grew by 0.5% in November 2016 following rates of 5.5% and 6.2% in September and November 2016 respectively. It added that all India volumes fell by up to 25% in November and December 2016. The agency expects demand for cement from the housing sector will to decline further from its current contribution of 65% of all demand.