Cement manufacturers need to explore new exporting markets. It is evident from projections based on current sales numbers that capacity utilization by the end of this fiscal year will fall below 70 percent. Worst yet, the industry will have over 20 million tons of idle capacity- if dispatches (both local and abroad) remain on the same level as they are in the first half of the fiscal year. The last time cement faced this utilization level, it was 2003 and the industry was quarter of its existing size. Worst yet, idle capacity-to date- has never crossed 15 million tons.
Reasons are well-recognized. Domestic markets are marred with demand depletion and a glut of supply. Back in 2016, the industry embarked on an ambitious phased expansion program which is all set to complete by the end of 2020. And while, subsequent years in 2017 and 2018, demand kept up with rising capacity—many times exports took over a larger share of the pie, current demand growth is simply not keeping up.
In the south zone, larger public projects have stalled. Private sector investment in real estate development is not flowing as much. As a result, domestic sales dropped by 27 percent in the southern area. In the north zone, demand has picked up against the same period last year but many claim the uptick may be partially associated to middle agents buying in bulk before the NIC requirement kicks in. Though many projects have been resumed, many plants in the north are keeping closed for days as demand is not only lower, it is also less distributed. Smaller players have much more to lose.
Demand in traditional exports markets have also been stagnant. In India, massive countervailing duties have stopped cement exports all together. Afghanistan is making up for that loss in market. Meanwhile, sea borne cement exports have also fallen. The only saving grace is clinker which is now 46 percent of total exports, a share that is unprecedented. Last year this was only 29 percent (read more: “Clinker is king?” Dec 31, 2019).
While clinker fetches lower margins than cement, at this point, if there is going to be so much idle capacity, and so little growth in local demand, exports—whether cement or clinker—will have to come to the rescue.