First half of FY20 was a disappointing one for the cement industry with volume growth remaining in low single digit (it was less than 2%). However, things started changing since November 2019 slowly and growth momentum had picked up in January and February this year. In fact, in January and February demand was up by 7% YoY basis despite the high base and the market was heading for a good quarter. However, nationwide lockdown due to Covid-19 pandemic halted the demand recovery and led to substantial negative impact on March volumes. As a result, overall demand showed a decline of 12-13% in the fourth quarter of Q4FY20. Situation was slightly aggravated due to the fact that the lockdown announcement was sudden without any prior notice which led to inventory pile-up among the manufacturers. Overall FY20 volume is estimated to be down by 3-4% to 326-330MT.
Smaller players gain
Overall, some manufacturers gained, some lost (market share) while some didn’t have much impact. Ultratech, the largest producer of cement, gained market share (excluding Century Cement) while India Cement saw dip in volume decline due to higher exposure to South India which declined by approximately 15% in Q4FY20. On the other hand, Shree gained market share on ramp-up of recently commissioned capacity in Jharkhand while Dalmia Bharat’s outperformance was aided by higher exposure to East India which performed better than other regions. In fact, smaller players showed better margin realisations than the large manufacturers. In the fourth quarter, market share of Pan India players and large regional players has slightly fallen to 72% from 73% in the same quarter in the previous year while that of small players has correspondingly gone up to 28% from 27% during the same period.
Price remains at elevated level
Despite the lockdown, price of the commodity remained at the elevated level and higher price was maintained till June. It may be recalled here that cement manufacturers had resorted to back to back price hikes in January and February seeing a strong recovery in demand. As a result, realisation in the fourth quarter was better as compared to earlier quarters and also same period in the previous year. Price hikes in North, Central and West India markets were higher than South and Eastern regions and players exposed to these regions registered better realisation than others.
On the other hand, despite high exposure to South India Ramco’s realizations were up YoY due to focus on retail sales. Sanghi Industries too enjoyed better realisations as pricing in Gujarat market remained strong throughout the year. Similarly, JK Cements’ exposure to North India and focus on premium products led to higher realization growth.
Softer pet-coke price
Though economic slowdown and the lockdown affected the volume during the year, cement manufacturers were fortunate to see softer fuel prices during the same period and as a result, their margins didn’t impact much. Cement industry realized benefits of lower pet-coke/coal prices as power & fuel costs for the industry declined by 5% year on year basis. Lower fuel cost will be seen even in the current financial year (at least in the first quarter) as pet-coke prices continue to remain low at around $62-63/tn versus average $70/tn in Q4 FY20.
To start with poor first quarter
However, the first quarter of the current financial year will be bad for the cement companies as they may see demand fall of 45-50%. According to the industry, April was a complete washout for the industry but May saw better than expected demand.
Management of most of the cement manufacturing companies are however, positive about the future prospects of the industry and feel that worst is over for the industry. After seeing better than expected demand in May, cement industry is now confident of the recovery of the industry in FY22. According to the industry, demand recovery may start happening from the third quarter onwards.