Cement Industry To See Pickup In Demand From Next Month: Report

Mumbai: Domestic cement industry, which is facing demand constraints post-demonetisation, may witness a pickup from January with likely normalcy in liquidity, according to a report.

"An abrupt decline in trade segment's sales volume down by 20-50 per cent on month-on-month basis against the backdrop of demonetisation of Rs 500 and Rs 1,000 notes led to postponement of demand as less availability of cash in circulation brought the construction activities to standstill," Reliance Securities research analyst Binod Modi said in the report.

"The domestic cement demand scenario is expected to pick up only from January 17 onwards with the likely normalcy in liquidity," he said.

Deferment of demand is to be temporary, he said, adding that a likely reduction in interest rate with better pricing will also aid the ailing organised realty players with spurt in housing demand, ensuring higher consumption. 

Demand environment is expected to see a gradual improvement from the fourth quarter of 2016-17.

"Hence, unlike our earlier expectation of demand growth of 5.5 per cent for FY17, we foresee demand growth should be in the range of 2-3 per cent in FY17."

"We expect a strong recovery in FY18 on the back of low base; pickup in infrastructure consumption; improvement in rural demand; and likely traction in government's 'Housing for All' scheme," he said.

However, demand from the non-trade/project segment was not much impacted as this segment works in soft currency. 

The prices appear to be resilient with moderate correction in some of pockets, as national average cement prices corrected marginally by 1.3 per cent month-on-month in November, Mr Modi said.

The prices in the northern and central regions are still strong on year-on-year basis, with the prices ruling as high as 5-7 per cent year-on-year.

Further, lower circulation of currency impacted the availability of other key materials like sand and grits and also led to labour crisis in many pockets. 

Further, unorganised realty segment - where unaccounted funds are usually involved for buying land parcels and getting various approvals - will be impacted the most.

It is unlikely to cast any significant impact as base of this segment was already at all-time low level and likely incremental consumption in infrastructure space will reverse the near-term decline, the report said.

Most dealers are of the view that this month is likely to be equally bad for demand as actual impact of demonetisation on near-term basis will be felt, while most manufacturers pushed supplies to the dealers in November. Visible delay in actual consumption will impact sales volume too, it added.

An improvement in liquidity with banks may enable the government to provide a boost to all fund-starved infrastructure projects especially irrigation, railways and road & highways, it said.