Cement demand expected to decline by 10-15% in Q2 2020: India Ratings

Cement demand is expected to decline by 10 to 15 per cent year-on-year in the second quarter (July to September), India Ratings and Research (Ind-Ra) said on Monday.

Rural demand will continue to outperform urban demand and companies having higher individual home builder exposure will remain better placed.

However, an increase in incidences of Covid-19 in eastern and central regions, and the recurrent state lockdowns can impact the demand recovery. Floods in the eastern and central regions in the seasonally weak Q2 will also weigh on the demand.

The western region remains the worst hit due to higher dependence on urban demand and a severe Covid-19 impact.

Cement demand recovered quickly to 79 per cent of last year's volumes in May and 93 per cent in June led by a strong rural demand aided by three consecutive good monsoons, adequate availability of local labour and lower spread of Covid-19 than in urban areas.

Companies like Dalmia and Prism Johnson witnessed lower-than-average volume declines aided by their higher rural exposure.

The recovery has, however, slowed down since mid-July with state lockdowns and fading of pent-up demand resulting in a 13.5 per cent year-on-year decline in the month.

The capacity utilisations of listed entities fell sharply to 51 per cent in Q1 due to the lockdown impacting demand. With the expected decline of 10 to 15 per cent in Q2, the capacity utilization is likely to remain below 60 per cent.

Most of the ongoing capex is witnessing delays of three to six months due to labour shortage and cash conservation which may get prolonged for another such period.

However, Ind-Ra expects around 65 per cent of the announced capex for FY21 to come onstream (around 20 million tonnes expected in FY21), given that much of this is in advanced stages.

In conjunction with the decline in the demand, the additional capacity will widen the oversupply in the market, it said.

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(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)


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