Cement industry sees demand recovery, but prices remain on weak footing
Friday, June 26, 2020 - 9:20:42 PM

The cement industry is seeing some demand recovery now that lockdown is being lifted in many states. Cement dealers’ channel check by various brokers shows that pent-up demand is aiding the sector’s utilization levels. Further improvement in demand is expected to be driven by rural segments.

“Rural and pent-up demand has led to higher-than-expected volumes in May-June 2020 and the industry could just suffer nearly 40% year-on-year decline in 1QFY21E volumes, better than earlier expectations," said a Kotak Institutional Equities (KIE) Ltd report on 24 June.

It should be noted that segment wise, housing is the largest contributor (about 60%) followed by infrastructure and commercial projects. Within the housing sector, rural housing may pick up faster than its urban counterpart. According to analysts, urban housing could be a laggard and government spending on infrastructure and allied activities could remain muted in this fiscal year.

Cement prices, however, have seen moderation. “Our dealer checks suggest all-India cement prices have declined by 3% to ₹369/bag in June 2020 with easing supply-side constraints after a sharp 10% month-on-month increase in May 2020," added the KIE report. One cement bag weighs 50 kilograms. As the alongside chart shows, region wise, price cuts of more than ₹20/bag were steepest, in South India.

Labour scarcity is another factor that could weigh on cement demand and prices.

“In most regions continuing labour scarcity is likely to be the key factor keeping demand and prices in check. In Delhi and Kota, prices are at May levels. Nevertheless, with the acute labour shortage, demand in Delhi is only 20-25% of pre-Covid levels, and 50% in Kota, mostly arising from pending projects. With the easing of the lockdown restrictions, transport is improving. Rail transportation, however, is still plagued by labour scarcity at unloading sites," Anand Rathi Research said in a report on 23 June.

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