Cement demand dropped 45-50 per cent in November with the sharp decline in trade segment purchase post-demonetisation of high value currency. Cement industry produces about 23 million tonnes a month.
Demand for cement fell across regions with the central region covering Uttar Pradesh and Madhya Pradesh managing minimum disruptions. Infrastructure and construction activities across the country came to abrupt halt following withdrawal of ₹500 and ₹1,000 currency notes from circulation.
The fall in cement demand has come when the industry was expecting revival of infrastructure activities post-monsoon.
RP Gupta, Chairman & Managing Director, Shiva Cement, said contractors are finding it difficult to make cash payments for buying key raw materials such as sand, bricks and stones besides meeting labour salary.
Transactions between companies and their dealers are undoubtedly through the banking system but from there on the payments by retailers and customers vary according to their business relationship, he said.
The slowdown in real estate activity has hit the cement industry hard as 65 per cent of the cement produced in the country is consumed by the realty sector, he added.
Going ahead, the slowdown of construction activity in the unorganised realty segment that uses unaccounted funds to buy land parcels and get various approvals will impact sales in select regions, said Vinod Chawla, a Mumbai-based dealer.
“Sales in December may also be hit on the actual impact of demonetisation plays out on near-term demand. While most manufacturers pushed supplies to the dealers last month, the delay in actual consumption will impact this month sales volume of cement companies. Demand scenario may pick-up from January with the liquidity improving,” said Binod Modi, Research Analyst, Reliance Securities.
Despite sharp fall in demand, cement prices have managed to hold fort and dropped only marginally by about two per cent in November compared to the previous month. Though prices in the northern region fell by 1.7 per cent month-on-month to ₹283 a 50 kg bag in November, it was ruling much higher compared to ₹270 a bag registered last year.
“Prices have definitely dropped in November but that has not helped in reviving the demand as the real problem pulling down the demand lied somewhere else,” said Gupta.
Installing swipe machinesCement companies are trying to help dealers install card swipe machines to reduce cash-based transactions and thus arrest fall in cement demand, said Rajesh Kumar Ravi, Research Analyst, Centrum Broking.