Cement Sector to Get a Boost in the 2018 Budget?

Cement Sector to Get a Boost in the 2018 Budget?

Like the BSE Healthcare sector, Cement stocks struggled last year. As of March 2017, the capacity utilization was 75% out of a total available capacity of 375 million tonnes. This excess capacity led to intense competition. As a result of this, cement prices were down.

Then the Supreme Court banned the use of petcoke in areas around New Delhi including Rajasthan, Uttar Pradesh, and Haryana. This is a higher pollutant alternative to coal.

Cement producers prefer petcoke over coal because it had a better quality and price. More than 70% of the fuel requirement in the cement sector is met through petcoke.

Coal isn't just expensive, it is difficult to procure in adequate quantities. This shift from petcoke to coal is likely to result in a 15-20% increase in cost.

The cement sector is looking at the 2018 budget in February with a sense of optimism. The Indian Property market has been on a downtrend in India in the past few years affecting cement demand.

Cement players expect a higher allocation from the government towards the infrastructure space. A boost to the Real estate sector would result in higher demand for cement.

With 25% of capacity lying idle, cement producers would be able to meet the need for excess demand comfortably without much capital investment. This will boost their margins going forward.