Cement demand may drop by 20% in June quarter due to localised restrictions

Our Bureau Mumbai | Updated on May 18, 2021

Demand from rural housing accounting for nearly a third of the total domestic market to decrease: report

Cement demand in the June quarter of this fiscal is expected to drop by 20 per cent due to localised restrictions implemented by most state governments to break the Covid chain.

Fitch Ratings in a report said cement demand from rural housing, which accounts for nearly a third of the total domestic market, to decrease to a larger extent as it is more dependent on individual customers.

However, it said cement demand from other segments, such as urban housing, infrastructure and commercial construction, is likely to be less affected because these segments are less dependent on retail sales.

Rise in input costs

Key energy commodities, including petroleum coke, imported coal and diesel, which together account for more than 50 per cent of cement makers' costs, rose sharply, particularly after the December quarter of the last fiscal. However, the impact on cement companies' costs was less apparent in the March quarter as they switched to using lower-priced imported coal and benefitted from lower-cost inventories besides lag in adjustments in freight costs.

"We expect the impact to be more visible in June quarter, but the mid-single-digit price increases by the cement companies after third quarter of FY'21 will help to cushion the overall impact on profit," it said.

After March, the fresh curbs are more localised and less stringent than those last year, when a nationwide lockdown caused cement production to fall by 38 per cent year-on-year in first quarter of FY'21.

Unlike last year, manufacturing plants and construction sites can operate in most states, and there is significantly less disruption to logistics services and labour availability.

The economic impact of the latest restrictions to be less severe than those last year, which should drive pent-up demand for cement after the curbs are eased.

"We believe this should support moderate recovery in cement demand in FY'22 from FY'21 levels unless stricter or wider restrictions are imposed," it said.

Cement prices should remain resilient, as they were last fiscal, consistent with the industry consolidation over the past few years.

Published on May 18, 2021

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