Demand for cement likely to decline by around 25% in FY21: ICRA

Cement manufacturers may also witness compression in operating profitability by 150-200 bps during the current financial year.

File photo
File photo

NEW DELHI: Cement demand is likely to de-grow by 22-25% in FY 2021 given the prolonged nationwide lockdown and subsequent state/city specific restrictions disrupting construction activities, according to ICRA Ratings, a rating agency.

Cement manufacturers may also witness compression in operating profitability by 150-200 bps during the current financial year.

Despite the expected significant decline in demand, the cement prices are likely to remain largely at similar levels or get only marginally corrected given that the industry exhibits pricing discipline, according to the agency.

Anupama Reddy, assistant vice president, ICRA Ratings said, “The demand offtake effectively dried up during the lockdown period of close to 40 days. With the lockdown being extended with varying forms and severities across different regions, the demand has seen a sharp correction in Q1 FY2021. The demand is likely to recover only from H2 FY2021 post monsoons."

With the extension of lockdown in April 2020, the production was at a meagre 4.3 million metric tonne (MT), a significant decline of 86% Y-o-Y. The pent-up demand following complete supply stoppage and the trigger to complete the pending works before the onset of monsoon has helped production recovere to 22.2 million MT in May.

While rural housing is likely to drive the demand in the current fiscal, the urban housing, infrastructure and commercial and industrial capex are likely to take a back seat, said the agency.

"Most companies may go slow on capacity addition and preserve liquidity in face of demand slowdown. Some companies have already announced their plans to defer planned capex to an extent. Given the sharp contraction in demand, the industry utilisation levels are expected to decline to around 50% in FY2021 from 68% in FY2020," said Reddy.