The southern region had seen the steepest price hike of `70 per bag over January-May, but has come off by `38 per bag since then, given contracting demand growth.
Cement demand growth will witness a mid-cycle slowdown to 5-5.5% on-year this fiscal, down sharply from 12% in fiscal 2019. Growth would be lower compared with even fiscal 2018, when it had printed 9%. Demand growth will bear the brunt of weak government spending in the first half, which contributes to 35-40% of cement demand and liquidity crunch impacting real estate market, which consumes 5-8% of cement demand.
Other external factors such as election-related labour shortage, sand and water availability in key states further accentuated the issue in first quarter of current fiscal, said Crisil on Wednesday.
Indeed, in the first quarter, pan-India cement demand growth had contracted by 2%, with the east and north logging a contraction of 4-5% and 0.5-1.5%, respectively. Shortage of water and sand, and the impact of
Cyclone Fani had weighed on structurally weak demand factors in Bihar, Odisha and West Bengal in the east. Funding challenges stalled various institutional projects in Andhra Pradesh and Telangana in the south.
Around 22 lakh units are in different stages of construction under PMAY-Urban and the government has set a target of 60 lakh units under PMAY-Gramin for fiscal 2020. This alone will generate 80-85 million tonne (mt) of cement demand over the next year-and-a-half. This is higher than 15 lakh PMAY-Urban and 22 lakh PMAY-Gramin units that were constructed in fiscal 2019.
Despite these improvements, volume growth will remain under a cloud given the high base of last year and a weak Q1. However, chunky price hikes taken at the onset of the first quarter will drive revenue growth. On a pan-India basis, prices were up 12% on-year as of August this fiscal, with the north, south and east logging hikes of 20%, 12% and 11%, respectively. In fact, prices had increased by `56 per bag (January to May 2019) to `380 per bag as of May before falling to `355 in August. The fall is substantially higher than the seasonal fall observed over the last few years as demand growth has weakened.
The southern region had seen the steepest price hike of `70 per bag over January-May, but has come off by `38 per bag since then, given contracting demand growth. In the east and west, the price hike per bag has also come off from `55 per bag as of May to `35 and `22 as of August, respectively. The north and central markets, in comparison, have been able to sustain prices.