[sbinews] Economy Watch

  • From: sbistcbangalore@xxxxxxxx
  • To: sbinews@xxxxxxxxxxxxx
  • Date: Mon, 22 Dec 2003 20:33:27 +0500

Economy's shaking a leg, but cement industry ain't invited

MUMBAI: IT defies all logic and it has growth-watchers tied up in knots. Every 
business in the economy is on a roll; housing loans are growing at a breakneck 
speed, steel companies are reporting record profits after a prolonged dry 
spell, roads are being built and overall the construction business is booming. 

Everything seems to be fine, except for one missing piece from this jigsaw 
puzzle. Cement, the critical building block for the construction and 
infrastructure sectors, seems to be facing a growth drought. 

It sounds irrational, but this is what is driving economists batty — if steel, 
housing, roads are all growing, how come cement’s not been invited to the 
party? Or, why is cement excluded from the current cyclical upturn? Welcome to 
the cement conundrum! 

Here are the numbers. Cement offtake inched up by a meagre 4.37% during 
April-November ‘03 to 75 mt, against 71.86 mt in the corresponding period last 

This performance is its worst in three years. 

Industry output has inched up 4.38% to 75.15 mt during the period. Realisations 
are low in many pockets, despite recent corrections. And, the post-monsoon 
pick-up in demand, that expectant cement manufacturers were waiting for, has 
not quite materialised. 

“It’s difficult to justify a 4%-odd growth for the cement sector. How can the 
industry fare so poorly when the infrastructure sector as a whole is doing 
well?” asks Gujarat Ambuja Cements’ executive director Anil Singhvi. 

For the Indian cement industry, the world’s second largest with an annual 
capacity of 140 mt, the current fiscal has been among its worst. Apart from 
FY01, when aggregate dispatches declined by 0.6%, the industry has been on a 
joy ride, reporting a growth of 8.5% and 9.6% in FY03 and FY02, respectively. 
The industry reported its highest growth of 14.9% in recent years during 

So, what could be the reason behind the slow growth this year? There are many 
hypotheses and half-baked theories. One reason being forwarded is the good and 
extended monsoons in the current fiscal. 

The truckers’ strike in April, that had an adverse impact on volumes, is the 
other reason being adduced for the worsening situation. But this much is 
certain: the good monsoons this year did slow down construction activities for 
3-4 months. 

View this in the perspective of the previous year, when the impact was much 
lesser because of the less-than-average rainfall. In fact, for the period 
April-September, cement production grew by 9.7% in ‘02 compared to a 5.2% 
growth for the same period in ‘01. This has, in turn, created reason number 
three: a base effect. 

That means, whenever cement growth figures are compared with the previous 
year’s, they do tend to look smaller. The monsoon effect bears out when one 
examines monthly data individually. In ‘01, production during the months of 
June, July and August grew 0.8%, -6.5% and 9.4% respectively, over the 
corresponding months of the previous year. In ‘02, the same was 3.9%, 24.2% and 
12.2%, respectively. 

But during the current year, these figures have slipped to 9.1%, 2.5% and 5%, 
respectively. In September ‘03, production grew 6.6% over the September ‘02 
figures. Adds Rajiv Thakur, chief analyst, ICRA, “This year the monsoons being 
of a longer period, the offtake increase has taken that much time to start 
rolling. But given that macro fundamentals are in place, offtake would surely 
increase in the coming months.” 

There certainly is hope that offtake is probably finally showing incipient 
signs of taking off. Here’s why: After falling to a low of 86.88 mt in August 
‘03 (from a peak of 108.77 mt in March), the production curve seems to be 
snaking up. To be sure, the norm is the same every year: production dips in the 
monsoon months only to pick up September/October onwards. But what is unique 
this time is that production growth in September ‘03 (at 88.47 mt) over August 
was up 1.8%, compared to a meagre 0.3% for the same period during ‘02. 

What is actually baffling is the lower cement offtake, especially since related 
sectors like steel are booming. Production of steel structurals, a key input in 
construction activities, shot up 28.9% during April-August ‘03. Output of steel 
bars and rods rose by 6.3% during the period to 3.6 mt. Total finished steel 
consumption was up 7%. 

The machinery and equipment and capital goods sectors too registered a 5.7% and 
7.7% growth, according to CMIE figures during the April-August ‘03 period. Says 
AK Jain, executive director of ACC, “The steel sector has, to a large extent, 
been driven by exports. Hence, it is natural that offtake in the cement sector 
will not be able to match that of steel manufacturers.” 

Here’s the other reason why the cement industry has been scratching its head in 
bewilderment. Housing loan companies are on a high with buoyant disbursals. 
HDFC has reported a 30% surge in home loan disbursals, year-on-year, to Rs 
5,471 crore during April-September ‘03, against Rs 4,222 crore last year. 
Incremental growth in home loan disbursals by the banks alone was pegged at Rs 
5,755 crore during April-August ‘03, while disbursements during ‘02-03 shot up 
55% to Rs 12,308 crore. Besides, as analysts say, the growth in home loan 
disbursals may not necessarily, and automatically, translate into a boom in 
housing construction. “There is a high degree of re-rolling and refinancing of 
old loans, which is taking place due to the declining interest scenario,” said 
an analyst. Any old loan refinanced with a new loan also shows up as a new 


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