Cement exports from India is set to register 20 per cent growth in the current financial year. The export growth is primarily driven by an increase in cement consumption in the Middle East, including the demand arising from reconstruction activities in war-torn Iraq.
Total cement exports, which was 10Mt in 2004, is expected to touch 12Mt in 2005, according to industry sources. Indian cement companies had a combined production of 117Mt, of which around eight per cent was exported in the year 2004-05.
According to figures from the Cement Manufacturers Association (CMA), for the four month period April-July 2005, cement and clinker exports was at 2.91Mt, up from 2.54Mt in the same period, in 2004. Cement prices in the export market has also risen from US$35/t to US$45 this year, allowing manufacturers a better price realisation.
“Earlier, with surplus domestic capacity and low demand in the domestic market, we had no choice but to export at prices as low as US$35/t. Today the domestic price, minus the duties, is at US$44/t,” says Jayesh Doshi, assistant vice president, Treasury, Gujarat Ambuja Cements. The company exported 1.75Mt of cement in 2004-05 and expects to export 2Mt in 2005.
“What we are witnessing now is the same kind of situation that existed 10 years back. Some of the middle eastern countries are short of cement capacity and are importing from India at attractive prices,” said DD Rathi, CFO, Grasim Industries.
The main beneficiaries as a result of this boom are companies like UltraTech and Gujarat Ambuja which have their production facilities near ports enabling them to switch between domestic supply and exports, based on where the demand is from. With one-third of its cement production coming from its facilities near the Gujarat port, UltraTech Cement has been exporting 22 per cent of its total production of cement.
The good performance was also boosted by strong cement sales helped by the construction boom that gripped the economy last year. Cement consumption hit 1.5Mt mark, up from 1.3Mt the previous year.
Demand for houses has been increasing over the past two years, courtesy of the low interest regime brought about by the reduced domestic borrowing by the government. Property analysts reckon that the boom is likely to continue.
Market indicators also paint a rosy picture for the cement sub-sector in the current financial year with Sh12.9bn allocated for roads construction.
The allocation represents a 300 per cent increment and the government has expressed its desire to use cement rather than bitumen for road construction.
This coupled with Sh2bn for completion of stalled projects, is a pointer that the sector is headed for good times.The rosy forecast has triggered frenzy at the Athi River-based firm.
"We are positioning ourselves for both the domestic market and the emerging markets in Sudan and Rwanda," Kamau said.
Portland has embarked on a Sh800m expansion plan that will see it increase its production capacity from 600,000t to 1.2Mt over the next 12 months to match the rising demand.
"We are expecting a windfall in the next few years, and it is definite we are going to be part of it," Kamau says.