Atmanirbhar 3.0: Demand for steel and cement is set to climb

Nov 13,2020

Demand for steel and cement, two capital-intensive sectors undergirding physical infrastructure, is set to climb as real-estate and affordable urban homes emerge as the prime beneficiaries of India’s renewed drive toward achieving industrial self-reliance.

“The urban housing, affordable housing and infrastructure sectors account for around 60% of the total cement demand,” said ICRA ratings senior vice president (Cement) Sabyasachi Majumdar. “The focus on the housing and infrastructure sectors in the stimulus package is likely to support cement demand in the near term.”

Finance minister Nirmala Sitharaman has announced an additional outlay of Rs 18,000 crore which will be provided over the budget estimates for 2020-21 for the Prime Minister Awaas Yojana Urban (PMAY-U) through additional allocation and extra-budgetary resources.

"Today’s announcement of a 12-step package by the Finance Minister will go a long way towards economic recovery…Downstream impact on sectors such as steel and cement can be considered going forward,” said Tata Steel’s managing director, T V Narendran.

The government has also announced an income tax relief for first-time buyers on houses costing up to Rs 2 crore until June 30, 2021.

“Earmarking Rs 6,000 crore equity investment in debt platforms of national infrastructure investment funds for financing infrastructure projects would...support the cement demand in the medium to long-term,” said Icra’s Majumdar.

The move comes at an opportune time because the central government CAPEX had contracted 12% in the first half of this fiscal, said Isha Chaudhary, Director, CRISIL Research.

“PMAY-Urban buildouts, which had decelerated to a crawl in the first half, will also speed up with over 40 lakh units awaiting the release of funds long after they were sanctioned,” Chaudhary added.

However, analysts also said that the timeliness of these stimulus measures remains critical.

“Timely release will be a key monitorable, which can change demand for cement and steel in the second half of this fiscal,” said Crisil’s Chaudhary.

"Incrementally, this is definitely a positive for steel demand. This will lead to several projects being fast-tracked, which will create an incremental demand. However, the implementation time is crucial,” said Jayanta Roy, Icra’s senior vice president tracking the steel sector.

This comes a day after The Cabinet has extended the production linked incentives (PLI) scheme worth Rs 6,322 crore. The Indian steel sector said PLI will spur more investments and production in the specialty steel segment.

“The Rs 10,200 crores additional budget towards capital and industrial expenditure will give a major fillip to the economy, especially in the areas of domestic defence equipment manufacturing and infra projects,” said JSPL’s managing director, V.R. Sharma.

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