Cement makers must invest Rs 3 lakh crore by 2025: CII

Demand growth for cement has slipped to three-four% and consumption of cement is merely 260 mt

India’s cement industry, the world's second largest, needs to nearly double its manufacturing capacity by 2025, says a report by the Confederation of Indian Industry (CII).

According to Cement Vision 2025: Scaling New Heights, an additional capacity of 330-380 million tonnes in cement and 240-270 million tonnes in clinker could be needed by 2025. This translates into an investment of close to Rs 300,000 crore.

The report was published at a time when the cement industry is under pressure. Demand growth for cement has slipped to three-four per cent and consumption of cement is merely 260 million tonnes against a standing capacity of 360 million tonnes. Capacity utilisation is down to 72 per cent, one of the worst performances in many years.

However, the CII report said the cement industry’s growth during the next decade looked promising. “Cement demand is projected to grow to 2.5-2.7 times the current volumes and reach 550-600 million tonnes by 2025. Per capita cement consumption is likely to increase from 185 kg to 385-415 kg in 2025,” it said.

Despite being the second largest cement market, India’s per capita cement consumption is among the lowest in the world. The growth in demand for cement will likely be led by investment in the infrastructure sector, with sub-sectors such as roads, power and irrigation leading the charge. By driving increased cement use in infrastructure projects, the cement industry could achieve the full potential of demand growth, the report said.

Further, not only will infrastructure bring the cement industry back on the high growth path, housing demand, too, is likely to play an important role in the coming decade. According to the report, the housing sector will be one of the largest consumers of cement with 42-45 per cent of the total demand in 2025.

These changes will lead to a significant shift in the overall cement consumer mix. The share of large and direct buyers (contractors and developers) is expected to increase from 30% currently to 70%.

Such a shift will have three key implications for the cement sector :

a) Change in product preference :The share of OPC could increase in the future since large institutional buyers and Ready Mix Concrete (RMC) players prefer buying OPC and do in-house blending because of favorable cost economics.

b) Shift in mode of delivery, higher demand for RMC and bulk : The report said that demand for RMC may reach to 25% of total cement demand affecting demand for bulk cement.

c) Higher sophistication in selling and delivering : Timely onsite delivery, technical competence, relationship management, transparency in credit and commercial terms would become more important.

But the report also cautions that an unattractive tax and infrastructure environment would make it difficult to bring in the required investment. The study also highlights that depletion of natural reserves of limestone and gypsum will lead to supply constraints and increased dependence on imports. The government's easing of import duties on key raw materials would help, it said. Further, it also mentioned about streamlining the land acquisition process for greenfield expansion would have a positive effect.