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Lockdown forces sharp fall in cement demand; signals slowdown in construction activity

Industry pins its hopes on lifting of temporary state imposed restrictions; government has major infrastructure projects like Bharat Mala in the pipeline

The pandemic-led lockdown is impacting the demand for cement across the country.

Industry insiders say demand has slowed down by 20-30 percent in May, as compared to March.

According to Reliance Securities, cement demand was hit significantly in April 2021 owing to the Second Wave of COVID-19. The economic restrictions imposed by several states have drastically reduced construction activity, it said, adding that government and other key infrastructure projects are still moving even as the April volume was down by 10-60 percent month-on-month (MoM) across the regions.

Cement is required primarily in housing construction, infrastructure projects, industrial construction and commercial real estate, sectors that are facing a slowdown due to COVID-19.

A source in a Rajasthan based cement company confirmed to Moneycontrol: “Yes there is an impact on demand. We are seeing a dip of around 20 percent in demand due to this lockdown. However, we are expecting that demand will come back once the lockdown imposed by the states is over, as the government has a huge pipeline for infrastructure projects. Work on some infrastructure projects are still continuing and there is demand coming from rural areas. However, the demand from bigger cities has been majorly impacted.”

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Binod Modi, Senior Analyst of Reliance Securities told Moneycontrol: “After March every year, the demand drops in April and May by around 10-15 percent. However, this April demand went down by more than 20 percent. A similar trend is visible in May as well.”

He further added that the “government has not announced a national lockdown, but states have imposed restrictions in movement, which is impacting demand for cement. However, this year, too, we may see pent up demand like last year. So, 7-8 percent Compound Annual Growth Rate (CAGR) would be possible this year as well.”

Housing construction will be slow for the next 2-3 months due to this lockdown. A Mumbai based mid-sized real estate player told Moneycontrol that “housing demand is only for ready-to-move flats. Buyers are not ready to invest in under construction or upcoming projects, so new demand for cement is restricted in the short term. Secondly, due to this lockdown imposed by state governments, workers have moved to their native places, which are also impacting construction work”.

Boman Irani, Chairman of Rustomjee Group told Moneycontrol: “Our construction work is going on in full swing. We have provided accommodation to our workers; still there is a shortage of 10-20 percent of the workforce on the construction site. This is mainly due to Ramzan.”

According to Sanjeev Kumar Singh, Senior Analyst of Emkay Global, this year’s volume is similar to 2019 cement volumes. "We can’t compare with 2020 volumes as we were in a national lockdown during that period,” he told Moneycontrol.

On the price hike in the southern market, he said that they are already high in comparison to other markets. ``However, once the lockdown lifts, cement demand will also pick up. This is a short-lived slowdown in the cement segment,” he predicted.

However, the government is also in favour of low cement prices. Road and Transport Minister Nitin Gadkari has talked about a hike in prices of cement and steel. As the prices of steel and cement have increased exponentially in the last few months, it has positively impacted the stock prices of cement and steel companies.

The Competition Commission of India has also raised concerns about the price cartel in cement companies.

Cement players expect demand from large government projects. The government has ambitious plans in the infrastructure space like the Bharat Mala project and the Mumbai-Nagpur Express Highway.

It has also announced metro projects in several cities and the demand for cement will come from housing for all projects.
Tarun Sharma
first published: May 4, 2021 07:25 pm

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