China's cement sector faces headwinds, while India sees steady growth: Fitch Ratings

In the realm of cement production, China and India are navigating diverging market currents, shaped by distinct economic landscapes. Fitch Ratings' insights reveal a challenging outlook for Chinese cement demand in 2024, driven by ongoing distress in the property sector.

Meanwhile, India's cement industry charts a more optimistic course, with steady demand growth projected over the medium term.

The Chinese property sector's persistent challenges and a projected slowdown in infrastructure investment contribute to weakened cement demand in 2024.

Strained financing conditions for local governments, coupled with a decline in land sales, hamper their capacity to bolster spending on crucial infrastructure projects.

Despite these hurdles, Fitch notes a potential stabilization of producers' margins in the face of adversity.

The gross profit of China's top five cement producers witnessed a 3% decline in 3Q23, marking a notable slowdown from the sharper contractions observed in previous quarters.

Anticipating a reduction in capacity, Fitch foresees smaller, less profitable producers exiting the market in 2024. Government policies on capacity control and sector decarbonisation are expected to contribute to a medium-term reduction in overall capacity.

Contrasting China, India's cement sector foresees a robust trajectory driven by the nation's steady GDP expansion. Fitch predicts an annual growth rate of 6 per cent-8 per cent in cement demand over the coming years.

Infrastructure and affordable housing projects, fuelled by government spending, are expected to spearhead this growth, with additional impetus from the ongoing recovery in urban housing throughout 2024.

While India anticipates a doubling of annual cement capacity additions in the next five years, the industry's robust demand growth will help maintain healthy capacity utilization.

Fitch notes that the top five Indian producers will spearhead new capacities, with further mergers and acquisitions on the horizon.

Despite this positive outlook, the industry's focus on market share retention amid capacity expansions is likely to temper the potential widening of profit margins, even with energy prices normalizing post-2022.