Sand mining ban has obstructed the construction in the states of Bihar, Madhya Pradesh (MP), Uttar Pradesh (UP), Tamil Nadu, Rajasthan and Maharashtra, affecting the cement demand in these states. At present, while the construction scenario is weak in the states of Bihar, Tamil Nadu and Rajasthan, the states of MP, UP and Maharashtra have started improving, which is a positive.
In addition, the ban on usage of pet coke in the states of UP, Rajasthan and Haryana (as per Supreme Court’s order on November 17, 2017) due to pollution in NCR region has further elevated the pain for cement companies in these regions. Thus, the cement companies have switched to imported coal, which is 25-35% expensive than pet coke. The cement companies, which are expected to get impacted are – Shree Cement, JK Cement, JK Lakshmi Cement and Mangalam Cement – due to their higher proportion of pet coke usage. Various industry reports suggest that in order to pass on the extra burden, North and Central India based cement companies have taken Rs15-20/bag hike however, sustainability of the same remains a key monitorable. Next hearing of SC is scheduled on December 11, 2017, which would further clarify the pet coke consumption.
We believe, these two factors would keep the cement demand under pressure for the near term and would see improvement only after further clarification from the government. However, we remain upbeat on the improvement in cement demand in medium-to-long term, led by government’s focus on (a) affordable housing (~2.2cr houses to be built over the next 2-3 years), and (b) focus on road construction (83,677 km to be built over the next five years). Further, consolidation in the cement industry is expected to bring price stability for the industry.
Current Sand mining and availability status review
In Bihar, the sand traders and transporters moved on strike against new mining rules of State Government during July 2017 (which demanded regulatory requirements on sand suppliers). This resulted in very limited sand supply in market and thus a very weak construction activity environment. However, High Court has stayed new mineral rules on December 12, 2017. Government might appeal in Supreme Court against the High Court order.
Construction scenario is improving in Madhya Pradesh where government has allowed sand mining at the key sites and is planning to sell sand through online portal (to be managed by Gram Panchayats) from January 2018.
UP government has allowed mining only to the mines license owners and is planning for e-tendering of new mining licences. Ban still continues on the major construction sites. However, partial removal has led to partial pick-up in the construction activities there.
Tamil Nadu is also suffering from a weak construction environment owing to State High Court’s order of closure of all river sand quarries in the state within 6 months (on November 29, 2017). However, High Court has allowed import of sand.
Rajasthan is witnessing slowdown in activities (as of November 2017) as Supreme Court restrained 82 large sand mines’ lease holders from mining of sand till receipt of clearance from the Ministry of Environment & Forests. The state is expected to get clarity by December 2017.
Maharashtra is witnessing gradual pickup in construction activities led by normalising sand supply since September 2017 and is expected to completely normalise by December 2017.
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