The cement industry is expanding, driven by strong first-quarter results and rising private-sector and government spending on construction, according to Jefferies Financial Group Inc.
Urban and rural housing account for approximately 60–65% of the cement sector's demand. The housing segment has shown signs of revival over the past two years, with increasing property prices adding momentum to the upswing, the brokerage said in an Aug. 30 report.
Boosted by the Union government's production-linked incentive scheme, the real estate and commercial segments are expected to sustain their momentum, driving continued demand growth in the coming years. With most segments firing, the demand upcycle mirrors the one observed in financial year 2005–09, the brokerage said.
Capacity Expansion
Capacity-expansion plans by major players suggest that industry capacity utilisation will remain above 70%, the highest in a decade. However, the utilisation levels of 85–97% in the previous upcycle of fiscal 2005–09 are unlikely to be matched, the brokerage said.
Cement producers are increasing their capital expenditure in response to the rising demand, with an expected annual capacity growth rate of approximately 6% for the next two to three years, the highest in a decade.
Demand is also expected to maintain a steady 7% compound annual growth rate over the coming years. Given the tailwinds, analysts at Jefferies expect cement demand to clock double-digit growth for a second year in a row in fiscal 2024.
The lion's share of capacity expansion plans comes from larger players, with the top four contributing 52% of capacity additions from fiscal 2021–23. Over 75% of the capacity additions for fiscal 2024–26 will be driven by these top four players, according to the report.
Jefferies expects that there is potential for re-rating in the future as the capacity addition plans materialise with an increasingly consolidated market in the making.
Given the fact that the industry has maintained pricing discipline in the past, it is unlikely for a price war to occur, Jefferies said.
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