The cement industry that saw rural demand driving its impressive 12% growth last fiscal does not foresee any significant impact of a weak monsoon on demand. They believe that a higher government infrastructure spend and an improving housing market in metros may offset any fall in rural demand because of a weak monsoon.
Analysts though believe that a weak rural demand coupled with new cement capacities may put pressure on prices. "The second half of this fiscal may see rural demand for cement getting impacted partly because of lower disposable income at the hands of farmers due to a poor monsoon," said Jaiprakash AssociatesCFO Rahul Kumar.
Jaiprakash Associates, which has an installed capacity of 14 million tonne a year, mainly operates in Madhya Pradesh, Uttar Pradesh and Bihar. Mr Kumar said impact on rural demand for cement could be higher in Bihar and eastern UP, where dependence on rain for farming is higher compared with Haryana or Punjab, where irrigation facilities are well-spread.
However, he hopes that a shortfall in demand caused by a weak monsoon may get offset by the government projects and improvement in the housing market.
The cement sector has seen a robust growth in the past several quarters. As per data published by the Cement Manufacturers Association (CMA), the production and despatches grew 12% and 11.7%, respectively, in the four months to July this fiscal. Last fiscal saw an unusually impressive growth of 12% for the cement sector, despite GDP growth slowing to 6.7% on higher government infrastructure spend and rural demand.
CMA president and Shree Cement MD HM Bangur said on a long-term average basis, cement has grown 1.3 times the GDP growth numbers. So, if GDP were to grow by 7%, the industry can safely be assumed to grow by over 9%. A weak monsoon may impact cement growth by hardly 1-2 percentage points this year, he added.
Source: Economic Times