Cement prices to rise by Rs 15-20 per bag and demand to fall by 30%: Crisil

Mumbai: Cement prices are expected to jump by Rs 15-20 per bag initially due to supply constraints even as dealers across the country expect demand to fall by 30% on the back stalled construction projects showed a survey by Crisil.
“Almost all the dealers foresee 10-30% drop in demand in fiscal 2021 due to delay/freeze in construction activity,” the report said.

As markets reopen in the second half of May, cement prices are expected to jump Rs 15-20/ bag initially due to supply constraints However, over the medium term, we expect price hike to be rolled back due to lack of demand pick-up and rising competition

This comes at a time when Confederation of Real Estate Developers' Association of India (Credai) has, last week written to housing and urban affairs minister Hardeep Puri and commerce minister Piyush Goyal, seeking immediate intervention to curb the sudden hike of 40-50% in prices of raw materials such as cement and steel.

This extension of lockdown will result in further downside for the cement sector.

“The main reason is delay in construction by individual home builders (IHB), who account for 60-70% of sales in rural areas and 40-50% of sales in urban centres, and small real estate developers,” said the report.

The delay could be anywhere between 4 and 6 months depending on how the lockdown pans out. We expect 5-10% of end-users to actually call off their plans due to the gloomy business/ income outlook.

The report also said that recovery in urban areas to take longer due to higher dependence on migrant workers.

“Rural areas, where engagement of migrant labourers is just 30% compared with 80-85% for urban regions, are expected to see quicker resumption in construction activities”

On the bright side, more than 60% of the dealers have said that they possess minimal inventory of 2-4-days, but spoilage is a concern.

“They hope to sell of the remaining inventory as the lockdown eases. Of these, nearly 26%, holding 400+ bags, plan to offer discounts to avoid spoilage, or they will have to incur the cost,” said the Crisil report.

Over 90% of the dealers highlighted that logistics and handling costs are slated to rise 20-30% post lockdown as social distancing norms will stretch delivery schedules.