Indian cement industry puts expansion plans on hold

Indian cement companies have started putting their capacity expansion plans on the backburner as cement demand projections are upset by the Covid-19 outbreak.

India has been under a nationwide lockdown since 25 March, which has been extended to 31 May, although some relaxations on movement and industrial activity have been allowed. A temporary collapse in cement sales has also resulted in cash flow shortages for many industries, including cement.

India's cement industry, the world's second largest by volume, had been expected to add 23mn t/yr of new capacity during the 2020 calendar year to achieve a milestone of 500mn t/yr of total capacity. The additions could have expanded Indian petroleum coke consumption by about 1.4mn t/yr. Several leading cement companies, including Ultratech, JK Cement, Dalmia Cement and Ambuja Cement, had projects to expand capacity, but most of these plans have been delayed.

"All the expansion plans in the cement industry are on hold because of a liquidity crunch," said Surinder Gupta, an independent cement industry consultant. He expects some projects to restart once the lockdown is completely over. The outbreak of the virus has led to an exodus of migrant workers from cities and construction sites to their homes in the distant countryside. This may limit the pace of construction even after the lockdown ends.

Cement manufacturing came to a virtual standstill for a month after India's lockdown was imposed in March. Several units resumed manufacturing around 20 April when the government eased some restrictions. Most cement producers are now operating at 40-50pc of capacity even though demand remains weak.

Indian cement output is expected to contract sharply from the 334.5mn t produced in the 2019-20 fiscal year that ended on 31 March. ACC, the Indian arm of Switzerland-based cement producer LafargeHolcim, expects cement demand to contract sharply this year, even though it is optimistic of a gradual recovery in the second half.

Many leading cement companies are budgeting for a sales cut of 50pc on the year, market participants said. Cement consumption is a reflection of the country's GDP growth. But various forecasts suggest that Indian GDP growth in the 2020-21 fiscal year ending 31 March may fall below 1pc from estimated growth of 5pc the previous year.

The lockdown has caused a temporary collapse in the country's demand for domestic and seaborne coke. Most Indian cement producers have been out of the seaborne coke market for nearly two months, putting domestic and seaborne prices under pressure. The Indian cement industry accounts for 71pc of the country's total coke consumption.

Argus last assessed the price of 6.5pc sulphur US petroleum coke at $57t cfr on 13 May, compared with $76/t in the week before the lockdown started. The Saudi 8.5pc sulphur price was assessed at $56/t cfr on 13 May, compared with $74/t ahead of the lockdown.

The lack of demand prompted private-sector Indian refiners Reliance Industries (RIL) and Nayara Energy to cut their basic sales prices for May by around 17pc to 5,892 rupees/t ($77.90/t) and Rs5,890/t, respectively.

By Ajay Modi