Indian cement industry is the second largest cement producer
in the world after China; ahead of the US and Japan, with a total cement
production capacity of ~420 million tons per annum (MTPA) as of June 2017. This
accounts for 6.7 per cent of world’s total cement output. The top 210 large
plants in India alone contribute 83 per cent of total capacity. Out of these
210 plants, 77 are situated in Andhra Pradesh, Rajasthan and Tamil Nadu.
Further, private sector companies contribute majorly in the total production capacity
with over ~98 per cent share and the remaining ~2 per cent contributed by
public sector companies. Top 20 cement companies account for almost 70 per cent
of the total production of cement.
Coming to the price trend in cement industry, overall retail
cement prices have witnessed a hike of `12 per bag in Q2FY18. This was led by
jump in the price by `36 in western region and `15 in the southern region. The
prime factor leading to such a hike was the increasing production cost, i.e.
rise of 13 per cent in pet coke price. Rising
pet coke prices and change in
regulations led to higher raw material
costs Almost 65 per cent of the pet coke in India is consumed by the
cement industry of which 40 per cent were imported. The recent government ban
on usage of pet coke in some states, which was later lifted, caused a
disruption in cement production and efficiency. Also, import duty on pet coke
was increased to 10 per cent from 2.5 per cent to reduce its usage. This hike
is expected to affect the operating margins of cement companies, including
Ambuja (62% usage), Ultratech (74%), India Cement (73%), JK Lakshmi (80%),
Shree Cement (100%). The distress had led few cement makers to change their raw
material from pet coke to coal for better power and fuel usage efficiency.
Moreover, this shift had led to steep increase in its power
and fuel costs (15-25% increase). Sand
shortage further led to margin pressure Further, shortage in sand
availability has led to an increase in sand prices. This triggered illegal
mining and government has imposed a ban on river sand mining which is affecting
the supply significantly. However, in MP, the government has permitted sand
mining at selected sites, whereas in Bihar and Uttar Pradesh, the sluggish
demand is persisting. GST rate increase and Rera further impacted companies the
government has fixed GST rate of 28 per cent for cement, which was 24 per cent
earlier. However, the GST rate for cement’s raw material, limestone, has been
fixed at 5 per cent. Also, for coal, the GST has been fixed at 5 per cent,
which was 11.69 per cent earlier. This cut in tax rate on coal will help cement
companies in cost reduction and will lead to profitability in coming years.
However, reduction in cost for the end-consumer will happen only if the cement
companies pass on their savings to their consumers.