Covid-19 impact: With retail shut, cement and stocks pile up at factories

cements
A cement dealer in the National Capital Region (NCR) says his shop is shut. He neither has any cement stock nor any fresh orders. Despite the Union government allowing construction activity to begin, inventories at steel and cement factories pile up since the retail end of dealerships, mandis and warehouses are shut.

“Our silos are almost full with cement,” said an executive from a cement company. This is even as an executive from a road developing company complained, “Cement and other supplies for projects are badly affected."

The government had allowed limited manufacturing activity in safe zones from Monday. Many of these have either partially started operations or are in the process of seeking local level approvals but are uncertain about the market conditions.

“For retail demand to pick up, it is important that the loha mandis (metal markets) in every city opens. Currently, there is no clearance for these mandis,” said V R Sharma, managing director at Jindal Steel & Power. Since mandis are shut, traders who stock their material at there cannot give it to the dealers or distributors. He is hopeful the Union government will issue notification addressing these concerns. 

The same holds true for the cement sector since dealers cannot open shops. Another executive from one of India’s top cement producers added companies have been unable to move out stock from plants as warehouses are shut. Most companies have outsourced their warehouse facility to a third-party.

A senior official from Steel Authority of India (SAIL) points out April is the month when dealers get demand registrations. “This fiscal we all are still waiting,” he said. The officials pointed out some of the large distributors are also facing concerns over non-movement of products from factories.   

Sanjay Ladiwala, executive member with Cement Stockists & Dealers Association, points out the government has allowed dealers to take and process online orders but the process is fraught with problems. 

Even while demand is largely absent, cement prices for certain pockets have seen a rise. Cement in the Telangana market, for instance, increased from Rs 325 a bag effective April  to Rs 370 effective May in the non-trade segment. Industry executives have also pointed out it will not be viable to reduce cement prices below pe-lockdown levels as running factories at lower utilisation will also impact viability.

Nitin Bhasin, head of research-institutional equities at Ambit Capital, does not expect cement companies to run kilns for the first two weeks post lifting of the nationwide lockdown. "April and May, both would be very weak months for cement demand. As the lockdown opens up, for the first two weeks, they don't need to run the kilns as they will have cement in the silos and the already produced clinker to meet the early days of demand,” he said.

Ravinder Reddy, director- marketing for Bharathi Cements, pegs the inventory level from 7 to 15 days varying from plant to plant and cement has a shelf life of three months.

Some players are readying their plants to be able to supply once demand kicks in. “We are currently preparing to be in a position to supply…..our infrastructure clients have asked us to keep stock ready so once labour and other concerns are addressed, supply can be made,” said Shailendra Choksey, whole-time director of J K Lakshmi Cement last week. Choksey does not expect the cement sector to return to its optimal level of utilization before the third quarter of the current financial year.

“At the moment most of the cement companies will be having inventories with them, first as demand comes up from infrastructure and dealers they will start dispersing the cement and thereafter they will start real production of clinker and cement,” said Mahendra Singhi, president for Cement Manufacturers Association (CMA).

Since 40 per cent of India's cement demand comes from individual housing projects, the wait will be longer. Industry executives also point large infrastructure projects, where cement demand could come in, are city-centred and most of those are in red zones. 



Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel