Cement demand likely to contract by 20-25% in FY21: Crisil

07 Apr 2020 Evaluate

Keeping a negative approach, domestic ratings agency Crisil in its latest report has said that cement demand in India is expected to contract by an unprecedented 20-25 percent in the current fiscal year (FY21) if the country is unable to contain the pandemic by May. It also said this would lead to extension of social distancing measures through June, and construction activity beginning only in Q2FY21.  However, assuming that lockdown and other social distancing measures will continue till April-end and construction activity may resume in mid-May, it said the fall in demand during the fiscal could be to the extent of 10-15 percent. 

The rating agency said that COVID-19 has cast a long shadow over a much-anticipated mild recovery in Indian economy in fiscal 2021. Along with external factors such as weak global demand, supply disruptions, and global financial shocks, the economy is grappling with lockdown, factory shutdowns, reduced discretionary spending, and delayed capex cycle, it said all this is expected to affect construction, and thereby cement demand. On a quarterly basis, it said cement demand would be a washout in the first quarter of this fiscal, given that the lockdown measures across India would hurt construction and demand will pick up only from the second half of this fiscal.

According to report, as government funds are diverted towards health and public welfare, its capex spends on all construction projects, which account for nearly 35-40 percent of cement demand, will be significantly lower during the fiscal. Besides, it said further weakening of the real estate sector will impact the capex spends and in-turn demand for cement. However, it noted that rural housing, Pradhan Mantri Awas Yojana -rural, Pradhan Mantri Gram Sadak Yojana, and spend on key infrastructure projects will be the saving grace for the sector in the second half of the fiscal. 

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