Economics of Cement

Cement is a ground mineral powder that serves as an adhesive to bind fine and coarse aggregates. Irrespective of impact of surrounding, it remains in its hardened state once reached.

The story isn’t that lean. Similar to steel, cement is a critical component in calculations of Index of Industrial Production (IIP) which is a prime indicator of the economic status. IIP is used for measurement of trend in the behavior of the Industrial Production over a period of time. And when talking about cement, direct correlation between GDP and per capita cement consumption is not to be missed out.

This fine grey powder has also managed to ignite some corporate juggles in India recently.  

In May this year, Adani Group clinched a deal for USD 10.5 Billion to acquire controlling stake in Holcim Ltd’s businesses in India i.e. Ambuja Cements and ACC. Overnight, Adani became second largest Cement Company in India and was owning combined installed production capacity of 70 MTPA. This was followed by ambitious expansion decisions by other players to safeguard their market interest such as the USD 1.66 Billion capex move by UltraTech.

These capex plans amid rising inputs costs and lowering operating margins shows how strong the conviction is about the nation’s growth potential in coming years.

Government has taken the task of infrastructural growth seriously in last few years as reflected in budgets starting 2015-16 till 2022-23. Schemes such as National Infrastructure Pipeline, Smart Cities Mission, ASIDE, Industrial corridors etc. highlight the strong aspirations. However, the private commitments are mild here. The export of cements is minimal as compared to domestic consumption, so the expanding capacity has to be cautious of domestic demand.

Coming back to the story of grey powder, the critical equation to watch out for is whether the expansion plans of Cement giants will be able to match up with domestic demand of Cement. And how actual and consistent the government’s infrastructural growth plans are. Even modest lowering or delay of demand will lead these expanding capacities to turn idle. Next 5 years are crucial for the demand-supply economics of Cement.   

Written By: Rahul Ojha, Sr. Consultant, Invest Punjab | Govt. of Punjab.

DISCLAIMER: Views expressed are personal.    

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