Looking at February’s dispatches, cement industry may kick off the final lap of the fiscal year FY24 in a fix. With demand dampeners still up, domestic offtake has visibly stagnated while exportsare failing to live up to the expectations they set for them during the first half of the fiscal year. In 8MFY24, total offtake in cement is up 2.5 percent, propelled forward by a 73 percent increase in exports as domestic offtake slid 4 percent year on year. Exports are contributing a lot more to the sales mix than before; 15 percent vs. last year’s 9 percent but January and February numbers show exports too are weakening.

For instance, in the first quarter of the fiscal year, the average monthly exports stood at roughly 583,000 tons with a massive push in exports recorded during August. In the second quarter, the average monthly exports were even higher, at 634,000 tons. But thus far in the third quarter, the average exports sold each month is about 421,000 tons. For the third quarter to match the export levels achieved during the first two quarters, March will have to record sales upwards of a million tons. While that is not completely outside the realm of possibility, it does seem unlikely.

Demand in the domestic market meanwhile has been fairly more straightforward. For the period 8M, the average monthly “domestic” offtake for FY24 is lower than every year since FY20 and higher only than the averages during FY17 and FY19 (see graph). This maps out the dispatch records for the past eight years, and by no means, FY24 has been the worst in terms of demand. But it has been pretty close, considering also that capacities have substantially increased as new investments were poured into the industry by eager cement companies hoping to grab a higher share in a market they thought would balloon in five years. Alas, the balloon burst. With that context in mind, lower offtake during FY24 should seem dangerously low. In Feb-24, capacity utilization stood at 47 percent while for 8M combined, the capacity utilization is about 56 percent, slight lower than last year’s 59 percent but much, much lower than any year before that dating as far back as FY10.

Prolonged tightening in the monetary policy as well as the fiscal policy, a combination of high-interest rates and low spending translates to a demand that can barely drag its feet to the finish line. Cement industry has performed phenomenally well considering such economic conditions and their financial standing has improved on the back of lower coal prices, optimized coal sources, utilization of renewable sources that reduced reliance on expensive grid electricity and stable cement prices in the market. While offtake is low, it is not as bad as one would expect in a struggling economy and in fact, consumer spending it would seem has persevered against all the odds stacked against them.

For now, this must suffice. The risks over the next couple of months are several. Exports have been cushioning the blow thus far, but they might also be losing steam soon which would place greater pressure on domestic market to perform. If that happens and domestic demand does not rebound, cement companies will eventually have to fight on price which throws the whole equation off.

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