Sluggish demand tempered cement prices; demand growth likely around 4%
The domestic cement demand growth is expected to taper to around 4% in FY2020 from a double-digit growth rate of 13.3% in the previous fiscal year. As per ICRA, cement prices have declined especially from June-October 2019 in most markets owing to weak demand. While the demand growth in Q1FY20 was adversely impacted owing to a slowdown in project execution due to the general elections and labor unavailability, in Q2FY20, the cement consumption is generally on lower side owing to the monsoon season. However, on a yoy basis, as the cement prices have remained on a higher side which coupled with the easing of cost side pressures is likely to support the cement companies’ profitability in the near term. Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings says, “Overall, in H1FY20, the cement production was higher by a mere 0.7% yoy. Given, the current situation of delays in project execution arising due to liquidity issues, the revival in demand in the near term remains critical, to even achieve a growth rate of 4% in FY2020. At this growth rate and with the expectation of around 20-22 million MTPA capacity addition in FY20, the capacity utilization at 71% in FY2020 is likely to remain largely similar to that in previous year.” In 6M FY20, the production was higher by a modest 0.7% at 163.7 million MT, compared to 162.5 million MT in the corresponding period previous year. The cement demand across various regions has been adversely impacted in H1 FY2020. In the northern and central regions, demand remained tepid due to slowdown in execution of Government projects and labour scarcity. In the western region, while demand in Gujarat was negatively impacted by labour and water scarcity, in Maharashtra, it was positively driven by infrastructure and affordable housing. In the eastern region, demand was sluggish across segments, due to weak project execution, unavailability of sand and shortage of funds. In the southern region, while demand momentum sustained in Kerala, driven by post-flood rehabilitation work and low-cost housing; and construction activity in Karnataka, it remained weak in Andhra Pradesh, due to sand unavailability and cancellation of old orders by the new state government.
Tags : ALLIED Maharashtra Andhra Pradesh Cement prices cement growth cement companies MTPA