Economy showing signs of recovery

Powered by increased government spending on infrastructure, the cement industry witnessed a dream run with a robust 12.75% sales growth in March over February and a healthy 9% growth in the last quarter. Not just cement, the steel industry, which has been reeling under the slowdown, saw consumption rise 3.8% during the last quarter of 2009. Cement and steel are considered bellwethers of economic activity. According to Rakesh Singh, joint president (marketing), The India Cements Ltd, south India's largest cement maker, "Clearly, the just concluded year was among the best ever the industry has seen. The industry ended the year with a production of 211 million tonnes and plants worked at 80% to 90% of rated capacity. The prices too were stable right through the year. The only problem was higher input costs." "The consumption was driven by individual housing outside the big metro cities and government sponsored programmes," he said. East India witnessed an 11% growth in consumption, south & central India recorded 10% growth during the fiscal, and north & west saw a 5% growth. "Centre and state governments are on an overdrive to complete projects ahead of elections. In Uttar Pradesh, cement prices sky rocketed by Rs 60 a bag in the last two months," a manufacturer said. "Clearly for cement, it was a good year. But the worry is substantial new capacities are coming up during this calendar year, mostly in Andhra Pradesh. From 211 million tonnes of capacity, the expectation for this year is 245 to 250 million tonnes. Therefore, prices may remain spongy," an analyst said. Archana Khemka, a cement analyst with Edelweiss Research, doubted the sustainability of current momentum in cement demand. "Demand has to grow by around 19% in FY10 to maintain utilisation at around 95% (similar to FY09 levels); this seems unlikely. Despite project delays, we believe surplus in FY10 is inevitable. "Second quarter of FY10 will mark the reversal of the current upturn," Khemka said. On the steel front, Union steel secretary Pramod Rastogi said consumption in the country rose 3.8% and production increased 1.2% in the last quarter. Rural housing and infrastructure will continue to boost demand, he said. Economic think-tank Centre for Monitoring Indian Economy (CMIE) has said the demand for steel will continue in this fiscal too. "The ongoing government-funded infrastructure projects during the peak construction season, a slight revival in the automobile industry and a sharp 40-45 % correction in steel prices from the peak level of July 2008 spurred the demand for the commodity," the CMIE said in its monthly review of the Indian economy. Revival of demand, it said, would also start reflecting in the prices, which were up 2% to 3% in March after sharply falling in the previous four months. "While the improved demand scenario would continue in 2009-10, this would not translate into a major recovery in steel prices," CMIE said.