First the bad news. The 2020-21 fiscal year was a time of uncertainty for the cement industry. At one point demand for cement fell by over thirty per cent, but the overall decline for the complete fiscal year is expected to be much more modest at around one or two per cent.
Other recent bumps in the road for cement manufacturers include rising prices for their own essential needs, such as power, transportation and packaging.
Nevertheless, the picture that is emerging seems to be much more favourable for the Indian cement industry. Government spending on major infrastructure projects such as highways, roads, metro rail projects, freight corridors, etc, plus affordable housing schemes are viewed as key drivers for growth. Indeed, in mid-March this year cement stocks rose sharply after leading manufacturers upped sales prices. This move was seen by some as a response to increasing manufacturing costs, but others noted an increase was logical given the sector’s buoyancy and realistic expectations for sustained growth in demand for cement.
Those expectations had certainly been raised in February following strong statements in the Union Budget by Minister of Finance Mrs Nirmala Sitharaman. Discussing affordable housing and rental housing, she commented that the Government sees ‘Housing for All’ and affordable housing as priority areas. She further indicated that measures taken to facilitate loans for the purchase of an affordable house would be extended by another twelve months, up until the end of March 2022. In other positive news, the Minister stated that: “we are committed to promote supply of Affordable Rental Housing for migrant workers. For this, I propose to allow tax exemption for notified Affordable Rental Housing Projects.”
The Indian Brand Equity Foundation (IBEF) concurs that robust demand can be expected from the housing sector, referring to initiatives to build 100 smart cities and a boost to affordable housing projects to give a further stimulus. According to IBEF, the housing and real estate sectors account for nearly 65% of the total cement consumption in India.
IBEF also points out that Government has decided to adopt cement instead of bitumen for the construction of all new road projects on the grounds that cement is more durable and cheaper to maintain than bitumen in the long run. To give this perspective, in the Union Budget 2019-20, Government mentioned upgrading 1,25,000 kilometres of road by around 2025.
A concern for the global cement sector is that it accounts for approximately 5 per cent of the world’s carbon dioxide emissions. There are several contributory factors. Firstly, cement manufacturing is highly energy intensive because of the heat required during production. If coal – a traditional fuel source – is used, then the production of a ton of cement generates nearly a ton of carbon dioxide. Secondly, during production, the principal raw material – limestone – actually releases carbon dioxide as it is converted into calcium oxide. Other carbon dioxide emissions accrue from the electricity used to power additional plant machinery as well as the onward transportation of the cement.
The global cement industry has therefore introduced mitigating options such as alternative fuels, improving the energy efficiency of the calcination process, preventative maintenance, and finally introducing alternative raw materials such as flyash.
In India, cement producers have also picked up this gauntlet. In December 2020, for example, Ambuja Cement and ACC issued a joint statement saying that they would have a sharper focus on green power generation. A highlight was the decision to invest in six Waste Heat Recovery Systems (WHRS) to be installed in eight kiln lines at six cement plants across India.
Other cement companies have successfully introduced alternative fuels. For example, at Madras Cement’s Alathiyur plant, the burning of coffee husk and cashew nut shells to create bioenergy has led to annual cost savings of USD 1.7 million. Meanwhile, the adoption of plant matter and refuse-derived fuel (RDF) for 100% of its fuel needs at Dalmia Cement will be an important step in the transition to renewable power by 2030 and carbon negative by 2040.
In line with growth expectations, many cement manufacturers have large-scale CAPEX plans. So in December 2020, UltraTech announced a massive investment of Rs. 5,477 crores in a 12.8 MTPA capacity expansion. Comprising both brownfield and greenfield expansion, the additional capacity will, it is understood, be created in the fast growing markets of the east, central and north regions of the country.
Further reports indicate that Ramco Cements plans to expand its production capacity to 20 MPTA by fiscal year 2022. Commenting, CFO S. Vaithiyanathan said: “Our production capacity is currently over 16 MTPA and this will increase to 20 MTPA with the completion of the third line of clinkering plant at Jayanthipuram in Andhra Pradesh and a new cement plant in Kurnool.”
Such investment brings benefits to engineering and construction companies. Hence Larsen & Toubro’s Buildings & Factories Business has secured an order from a leading cement manufacturer in India to construct a 10000 TPD Integrated Cement Plant in Pali, Rajasthan. The scope involves civil, mechanical and equipment installation works.
Sources: Ambuja Cement, UltraTech Cement, Ramco Cements, India Brand Equity Foundation, Crisil, The Economic Times, Earth Institute, Columbia University