Cement Industry recovers post demonetisation with a 1.5% production growth in May ‘17

Brief: The cement industry, which was growing at a negative rate of average (-) 10% in past five months, has turned positive with 1.5% growth in May, 2017; While electricity, petroleum refinery products, natural gas, steel and cement grew strongly, neutralization effect came due to mild performances recorded by coal and fertilizer industries.

Impact: Positive (Cement, Electricity, Steel); Negative (Coal, Fertilizer)

Indian core industry has expanded by 3.6% in May, 2017 as against 7.7% the previous year. The positive growth of the core sector is primarily driven by electricity, petroleum refinery products, natural gas, steel and cement. However, this healthy growth of the industries was neutralized by the mild performance of coal and fertilizer industries.

The cement industry, which was growing at a negative rate of average (-) 10% in past five months, has turned positive with 1.5% growth in May, 2017. The industry has recorded average growth of 5% during FY13 to FY16. This indicates that the long term performance of the industry is strong and will continue to build on the infrastructure push. However, due to negative growth post demonetization, the annual growth rate contracted to (-) 1.2% in FY17. The demonetization in November, 2016 has adversely impacted the real estate sector and conversely the cement sector as the former is a major consumer of cement.

Owing to the weaker demand, sales of the cement industry had dropped by (-) 0.1% in Q3, FY17. As a result, operating profit also reduced to 6.3% during the same quarter as against 20.9% in the previous quarter. SMERA expects the growth outlook of the industry to remain resilient in FY18. Government investment in infrastructure will keep the demand for the industry strong. Price of cement is growing above 10% in India for past two months and this also marks a positive sign for the industry.

Growth rate of core industry (Year on Year):

Core industry

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Coal

3.5

6.6

10.8

-3.3

-3.3

Crude oil

1.3

-3.4

0.9

-0.6

0.7

Natural gas

11.6

-2.1

9.6

2.0

4.5

Petroleum

0.0

-2.8

2.0

0.2

5.4

Fertilizer

-1.2

-4.0

-3.2

6.2

-6.5

Steel

11.3

8.7

11.0

9.3

3.7

Cement

-13.3

-15.8

-6.8

-2.4

1.8

Electricity

5.2

1.2

6.2

5.4

6.4

Overall growth

3.4

0.6

5.3

2.8

3.6

Source: Ministry of Commerce and Industry, SMERA Research

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