As cement offtake remained weak in the first half of the current fiscal ending September, ratings agency ICRA forecasts demand to bounce back from the last quarter, pinning hopes on housing and infrastructure to revive demand.
As the Real Estate Regulatory Authority (RERA) affected real estate activity, with sand shortage and GST implementation compounding problems for the cement sector, the ratings agency has revised its earlier estimate that demand will be back by Q3.
During the first five months of the fiscal year 2017, cement production reported a de-growth of 3.2% to 117.3 million tonne as compared to 121.2 million tonne during the same period last year.
While sand shortage and labour unavailability effected offtake in the North, RERA negatively impacted construction activity in the west with southern states like Tamil Nadu and Kerala grappling with issues like drought (which impacted rural offtake) and weak housing activity, a release by the agency said.
“The recent ban on sand mining in Bihar is likely to impact the sales volume growth in the eastern region, going forward. Monsoons impacted the demand in August – September 2017 across various regions. Further, the demand in October 2017 is likely to be subdued by extended monsoons in some regions and continued sand availability issues (in Punjab, Uttar Pradesh and Tamil Nadu),” Sabyasachi Majumdar, group head at ICRA Ratings said.
On the pricing front, prices remained “higher than traditionally what has been witnessed in the monsoon impacted Q2s till FY2016.” Costs also increased as pet coke prices firmed up by 12%-15% on YoY basis in the quarter ending September while coal and diesel prices also stayed on an upward trend.
“Subdued real estate activity and sand unavailability in few states is expected to delay the cement demand recovery to Q4 FY2018. The demand growth is likely to be driven by a pick-up in the housing segment – primarily affordable and rural housing, and infrastructure segment – mostly road and irrigation projects. From the profitability perspective, the industry’s ability to maintain cement prices going forward remains critical, given our expectations of higher power, fuel (increase in coal and pet coke prices) and freight costs (increase in diesel prices) during FY2018,” said Majumdar.